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Amazon.com hopes results take spotlight off snafus

July 20, 2009

US-KINDLE/Amazon.com reports second-quarter results this week and the online retailer is likely hoping projected market share gains take the focus off of two embarrassing Kindle blunders last week.  

 On Friday, Amazon acknowledged that it had deleted certain purchased e-books from the Kindles of an undisclosed number of owners. Why? Turns out that Amazon never had the rights in the first place to sell digital copies of the works. Poof! They went away.
    
As one blogger on Gizmodo wrote: “If you can’t be sure that you own something after you pay for it, what’s the point?”     
 
Amazon later acknowledged that it should have alerted its customers.
 
“These books were added to our catalog using our self-service platform by a third-party who did not have the rights to the books.  When we were notified of this by the rights holder, we removed the illegal copies from our systems and from customers’ devices, and refunded customers,” said a spokesman. 

Ironically, the books at issue were George Orwell’s totalitarianism-themed classics “1984″ and “Animal Farm.”
 
The vanishing book episode was the second public relations snafu in a week for the Seattle-based company, whose $299 Kindle or $489 Kindle DX are touted as the future of reading. On Wednesday, a lawsuit was filed in Seattle by a Kindle owner claiming its protective cover, which is sold separately, actually can end up damaging the device. The lawsuit is seeking class action status.
 
Kindle users download books, magazines and newspapers from the Kindle Store, and are billed accordingly.
 
Amazon watchers aren’t sure just how profitable the device and its downloaded content are for the company, and a host of variables from competition to the economics of publishing complicate the discussion.

But today, Credit Suisse estimated the company will gain about $420 million in total Kindle revenue – devices and content – in 2009, growing potentially to $3.9 billion by 2014.
 
Analyst Spencer Wang estimates a gross profit per unit of $69 for the Kindle, based on an estimated cost of goods of $230. That’s a 23 percent gross margin, which could rise north of the 30s as cost of goods decline, he wrote.
 
Wang acknowledged that “growth in the Kindle is likely to cannibalize to some extent Amazon’s core business of selling printed books” and said the Kindle should not be viewed as a “material driver to Amazon’s fundamentals in the medium term.”

(Photo: Reuters)

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