Kindle at Target a dumb idea

If rumors about Amazon selling its electronic reader at the big box store are true, Amazon execs are out to lunch.

By InvestorPlace Apr 8, 2010 11:49AM

Amazon Kindle, Credit: APThe tech blog rumor mill is running at full speed today about a partnership between online retail powerhouse Amazon (AMZN) and brick-and-mortar discounter Target (TGT). Supposedly, Amazon's hit Kindle e-reader will be on sale in Target stores later this month.

 

Engadget kicked off the frenzy with what looks to be a covert screenshot of Target’s inventory computer. Target is being conspicuously closed-mouth on the subject, deflecting requests for comments with a simple vanilla statement: “Target has no specific plans to share at this time, and we don’t comment on speculation or rumors.”

 

But let’s play devil’s advocate and assume the partnership is in the works. One screaming question needs to be answered: Why in the world would Amazon agree to a middle man when its whole business is centered around an online warehouse model with low overhead and no physical point of sale?


If the deal is true, it’s a dumb move for Amazon. And here’s why:

 

First, let’s not overlook the fact that if Target signs on to this deal it will want something out of the equation. Will Amazon really let the store get a share of the profits when its fighting so hard with publishers to keep its digital book titles affordable? Adding another layer of cost will only make Kindle titles pricier. That runs counter to anything Target has pushed for so far. And with Apple (AAPL) now competing directly with the Kindle with the iPad’s electronic reader features, being cost-competitive is more important than ever.

And while selling the Kindle at Target would give AMZN more visibility, does it need it? As of the fourth-quarter, Amazon estimated 1.5 million of the devices have been sold. Industry insiders estimate the device generated about $750 million from its launch in 2007 to the end of 2009.

 

Brick-and-mortar Target stores could also provide an outlet for folks who aren’t as inclined to shop on the internet… but how in the world does that make sense for a device that needs the internet to download titles? It’s possible TGT could be planning the sale of digital books in its stores as well, but that would cut into profits for publishers and Amazon alike and would be much more inconvenient than simply logging on and grabbing a new book with a few clicks online.

So the bottom line is that even if the rumors are true, they are certainly not cause for celebration. Consumers shouldn’t expect lower costs or easier access to the Kindle -- and investors shouldn’t be thinking that they will see anything good come of this for Amazon stock.

 

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