Kindle: The Mathematics Behind Amazon's Move

Amazon today announced that it will sell an advertising supported Kindle for 114 USDs. Thats a price cut of 25 dollars, and Amazon gets to show ads on the Kindle home screen and some screensavers. Whats the mathematics behind this move?

Lets see. We'll use 2011 projected numbers of 8 Million Kindles, and assume that Amazon will sell some 6 Million Ad-supported Kindles in 2011. Or, ignoring holiday effects etc. 1.5 Million Kindles every quarter.

Although we have no user surveys to support this, we shall assume that an average user sees the home page some 10 times a day, and the screen savers, a similar number of times (the basis assumption is that there are 10 times, including breaks between reading, that the user switches 'on' the Kindle.

We do not know how this advertising is sold, but assuming a quarterly exposure deal gives an advertiser, a total of 20 times 1.5 Million - that is, some 30 Million Views. This is more like a pop up window than banner advertising (technically the screen saver is like a popup window and the homescreen ad is like a banner) but we can assume that targeting can be heavy - this is a location aware device sitting in the hands of a one-click-purchase customer who has been profiled inside out by Amazon. There is a potential Groupon competitor in here, and if you add all the cross selling potential, we are looking at something big.

But working with existing numbers - Amazon just bought this growing ad inventory at the rate of some 0.08 CPM - an AMAZING DEAL - given how much this space would potentially be sold for, Amazon got a major deal for itself.

Agreed, the choice is still with the sellers of this ad space (potential Kindle buyers) but who would mind an ad or two for a 25 dollar deal upfront, right?

We remember reading some joke about selling advertising on the Windows blue screen. What a missed opportunity that one was!