If lower prices haven't swayed you into buying an e-reader, how does a steady diet of free e-books sound?
Amazon.com (AMZN) is introducing the Kindle Owners' Lending Library, a bonus for Amazon Prime members who are already paying $79 a year for free two-day shipping on Amazon-warehoused goods and access to roughly 13,000 streaming video titles.
The new lending library lets Kindle owners "borrow" an e-book from a list of hundreds once a month at no additional cost.
The initial selection isn't too shabby. Michael Lewis' Moneyball, Anthony Bourdain's Kitchen Confidential, and Sara Gruen's Water for Elephants are some of the current and former best-sellers that are being made available.
The digital librarian is more forgiving than a real one. There are no due dates. The book simply disappears from your Kindle the moment you check out another free title a month or more later.
Kindle, Barnes & Noble's (BKS) Nook, and other electronic readers already allow for e-book borrowing at the local library, but the Kindle Owners' Lending Library raises the bar of convenience by letting Kindle owners zap the borrowed e-book to their portable gagdet no matter where they happen to be.
The Long Road Down
It certainly only helps that Kindles are no longer setting readers back $399 apiece the way they were when Amazon introduced the devices four holiday seasons ago. The Kindle can be had for as little as $79. The new Kindle Fire tablet hits the market in a few days at $199.
The challenge here for Amazon will be making sure that this all pays off.
Profitability fell by 73% in Amazon's latest quarterly report, and the low end of the leading e-tailer's guidance for the current quarter suggests that an actual loss may be in the cards this holiday season.
Investors have largely given Amazon a pass on the margin contraction. They understand why Amazon is trying to make sure that there are tens of millions of Kindles -- and millions of Kindle Fires -- in the market. Digital delivery affords Amazon the ability to deliver books, videos, movies, and games without having to fret over warehousing logistics and shipping costs. It doesn't matter if it fails to make money on the Kindle. It can even subsidize the hardware the way that some video game console makers do, knowing that they can make it back later in media sales.
However, what happens if public library borrowing or the new Kindle Owners' Lending Library is too good?
Freeloaders Who Love to Read
Can Amazon make money on someone who buys a $79 Kindle and relies only on borrowed books? There are also plenty of public domain e-books that are freely available.
It's a chance that Amazon is willing to take. The mall food court employee handing out free chicken samples on toothpicks realizes that giving away morsels of food is a money-losing proposition. The reason it works is because it attracts the hungry, resulting in incremental sales from mall shoppers who were probably going to eat somewhere else. Let's apply that logic to Amazon's new lending library.
After a few months of going through Michael Lewis books and Suzanne Collins' The Hunger Games trilogy, bibliophile freeloaders will gain an appreciation for the Kindle itself. Why wouldn't they want their morning paper or weekly magazine in Kindle form? Amazon does offer them, you know. How about the book that they were going to buy? Waiting a month for a free book is a chicken square on a stick, but it's not a full meal.
Amazon knows what it's doing.
Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article. Motley Fool newsletter services have recommended buying shares of Amazon.com.
Get info on stocks mentioned in this article: