Amazon.com Inc. (AMZN) Wants Kindles to Be Free?

Amazon.com Inc. (NASDAQ:AMZN) will eventually offer its basic Kindle e-reader for free. At least, that is what one observer believes in reference to the company. Free Kindles for everybody! OK, with a catch. Of course.

Amazon.com Inc. (NASDAQ:AMZN) observer and prognosticator Farhad Manjoo of Slate.com – who has made several predictions (guesses?) on Amazon’s doings in recent years, is putting out this gem: he believes that Amazon.com Inc. (NASDAQ:AMZN) will offer its basic Kindle e-reader for free to customers who sign up for Amazon Prime, which costs $79 a year (coincidentally, the current price the Kindle is selling for now on Amazon.com). Also, he believes that those who sign up for Prime on their own – without the free Kindle inducement – would get a free Kindle with the purchase.

What makes him so sure? He looks at the company and sees that Amazon.com Inc. (NASDAQLAMZN) is positioning itself to make its money on its services and merchandise, and not so much on its own line of products. As it stands now, according to analysts, Amazon loses a few dollars on every Kindle it sells currently. However, Amazon offsets those losses in other ways.

Manjoo asks (and answers) two questions regarding his theory – why would Amazon.com Inc. (NASDAQ:AMZN) do such a thing, and how could it afford to do so? The first answer, he says, has to do with the merchandise and services sold. The company loses money on every Kindle it sells, but it makes money because the affordability of e-books and the ease of accessing them, has actually made people more voracious readers in the era of e-books than they were when books were only published in hard copies.  And when they buy more e-books than regular books, each Kindle owner then, actually makes Amazon.com Inc. (NASDAQ:AMZN) more money per Kindle.

And that leads to the second answer. Kindle e-books can be read on other e-reading devices – iPads, tablets, smartphones, etc. – but e-books bought elsewhere cannot be read on a Kindle, only on the proprietary devices of the company that sold the e-book. The Kindle version of Abraham Lincoln:Vampire Hunter can go with you with whatever device you have; but an Apple iBookstore version of the can only be read on the iPad or iPhone. That versatility advantage likely may mean that when a customer gets a Kindle, it may be more likely to buy e-books from Amazon.

It is an interesting theory, and one that may gain some energy after Amazon.com Inc. (NASDAQ:AMZN) makes it’s expected announcement that it is unveiling new Kindle devices this year. That might necessitate a clear-out of the Kindle from Amazon’s ample shelves. This theory is something that some investors may watch for – including hedge-fund managers like Ken Fisher of Fisher Asset Management.