Kindle at Target no answer for Amazon

With Apple gunning for Amazon in the reader market, few growth drivers remain to justify Amazon's lofty valuation.

By Jamie Dlugosch Apr 23, 2010 11:29AM

Amazon's Kindle. Credit: APAmazon shares are taking a hit today after a disappointing earning report. The problem, according to this report: The market wanted to see momentum picking up with the economy. Instead, investors see roadblocks.

 

To my mind, one of the big hurdles is a little Apple (AAPL) product called the iPad. Books are going digital, and Amazon is chasing that market with its Kindle. But more versatile iPad, which does a lot more than read books, threatens to become a category killer.

To me, Amazon’s (AMZN) decision to begin selling Kindle at Target beginning this Sunday is proof that it smells the danger. But can it fight back?

 

Perhaps it’s merely folklore, but suppliers cutting deals with discount retailers usually end up getting a raw deal.

 

The attraction is obvious as the opportunity to distribute your product in front of a mass audience is always a good idea. Then again does not Amazon already get its product in front of a mass audience on the internet?

 

To me this looks and feels like an act of desperation instead of being a wise decision by a retailer now engaged in intense competition with king of the world technology company, Apple?

 

Over the last year much was made of Amazon and the success it had in launching an electronic reader. In addition to being a game changing move the launch of Kindle was turning out to be quite lucrative for the on-line retailer.

 

Unfortunately Amazon is completely out of its league with respect to marketing and selling electronic devices. Amazon makes its money selling goods on the internet at cheap prices.

 

In fact if anything the core business of Amazon is selling books. Now being able to sell books on an electronic device holds incredible potential, but investors are making a mistake thinking that the selling of the device alone can be the next growth driver for Amazon.

 

It simply is not happening.

 

For about the same amount of time or more that Kindle has been on the market, Apple has been plotting a strategy for not just an electronic reading device, but a machine that will completely change the way content across a broad spectrum is digested.

 

With the launch of its I-Pad Apple is now in the game and Amazon should be very afraid.

 

On Thursday I launched my new Top Stocks service that includes an exclusive special report on pair trades or stocks to buy and stocks to sell. At the top of the list is the suggestion to buy Apple and sell Amazon.

 

Aside from having very compelling advantages Apple has a track record of dominating a category even if it was not first to the game. Look no further than the evolution of digital music.

 

Where others tried Apple succeeded.

 

Do you really think selling Kindle at Target is going to make one bit of difference? If you do, I have a suggestion for you the next time you visit Target.

 

Take a look at the trash heap offerings of digital music players and ask yourself if you would own the stock of one of the second tier players?

 

I recently visited a Barnes & Noble (BKS) that is trying to sell an electronic reading device of its own. Prominently displayed at the front of the store manned by a Barnes & Noble employee the little Nook product sat there all alone.

 

Not one customer paid one bit of attention to the pitch. I took pity on Barnes & Noble as the attempt to sell its product was quite pathetic.

 

Good luck Amazon with your efforts to sell Kindle at Target, but your future is in the on-line retailing business. For those of you owning Amazon stock based on Kindle’s future my suggestion would be to sell your shares immediately.

 

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