Why the ad-subsidized Kindle will be a success

This week, Amazon announced the lowest costing Kindle yet: identical to the current $139 one, but with ads and “special offers” on the home screen and screensaver, and available for $114; $25 less than the standard version. Reactions from around the web have been mixed, with Dan Frommer even calling it “a look at the future of gadgets,” but Justin Blanton wonders why would anyone want this. It may seem illogical; a one-time discount in exchange for ads forever. But this is to overlook how quickly most people will jump to save even a few dollars.

There are airlines like easyJet and Ryanair that thrive on offering the lowest price, at the cost of increased advertising and decreased amenities. Then there are services like Simplenote, LastPass, Spotify, Pandora, Flickr and others that offer free versions, with premium subscriptions sans advertising. Perhaps the best example is the iOS App Store: countless apps have two (or more) versions, one free, often with advertising and one paid. The free, “lite” version is usually more popular.

That’s how the freemium model often works — a free, ad-subsidized version, and a “pro” or full version with no ads and perhaps more features/less limits. Amazon’s $114 Kindle is another take on a familiar model; instead of free without ads, it’s merely cheaper without ads. Amazon is not the first company to try this.

Now, there’s certainly a much higher psychological barrier between versions when the cheapest available version is free, but many people obviously prefer saving money — even a few dollars — than paying more to avoid advertising.

Granted, accepting advertising “forever” seems like a significant compromise. But at the pace technology advances, most people will probably want an upgrade in 2-3 years. That means the ad-free version costs about $8-12 a year. There are services that charge around that price for an ad-free experience, and while the ad-subsidized Kindle might not be a good deal, that doesn’t mean it doesn’t have a significant market. For plenty of people, saving some money is more than enough justification for seeing a few ads.

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