No longer. Not only are more mobile phones being sold now than ever before, there are more types of folks making money off it. For smartphones with an ecosystem such as iPhone, there is

- Apple, the iPhone manufacturer

- AT&T (in the U.S.) that provides cell phone connectivity

- tens of thousands of developers who sell their iPhone applications through the App Store (with Apple getting a cut). And this is not just indie developers. Amazon stands to make a huge bundle through book sales via its Kindle Reader app for iPhone [2]

- businesses that create free iPhone applications but make money off ads within their applications [3]

- record labels that offer their music for sales on the iTunes Music Store

- television networks and Hollywood studios that offer their TV shows and movies (respectively) for sale/rent, also on the iTunes Music Store

Of course, this runaway success has inspired every smartphone label to scramble to bake its own pie. Witness the plethora of application stores (Palm, Nokia, Blackberry, Windows Mobile, Android) [4], and Nokia’s attempts to sell music.

Open or closed?

The more mature a product category gets, the more players there are that stand to make money off it. That’s because the pioneer quickly realizes that for true scale, it must “open up”  the product to entities other than itself. And that’s where it seems we have from history, a clear lesson: IBM opened up the specs of its original PC, and hordes of beige box manufacturers crowded Big Blue out of its own market. Apple itself nearly destroyed all that the Macintosh stood for when it licensed the Mac to other manufacturers.

“Opening up” a successful product and creating an open ecosystem divides the pie into so many slices that the pioneer is left picking up only crumbs. Apple’s iPhone ecosystem has been “opened up” to all those players above through the iPhone OS developer API, the iTunes Music Store and the iPhone App Store, but the ecosystem itself remains tightly closed.

[1] OK, so there were (are) electronic component manufacturers on the source side and advertising agencies on the sell side. But let’s limit ourselves to those that gained directly from the mobile phone. 

[2] Also with iPhone OS 3.0, developers can now charge for features within the application (unlocking extra weapons and purchasing weaponry within games being the most commonly cited examples), so you could have a free basic application with paid features if you like. Before OS 3.0, the best that developers could do was offer separate “free” basic and “paid” full-featured apps.

[3] Take Twitterific, for instance. The free version of the application inserts ads into your tweetstream.

[4] With comical attempts to make them sound different (Palm Software Store, Nokia Ovi Store, Blackberry App World, Windows Mobile Marketplace, Android Market). 

Or not.

The article’s conclusion is probably right (this is what this post is about; the Kindle could indeed help the U.S. newspaper industry) but its reasoning is entirely incorrect.

Costs (printing, distribution or others) were never the newspaper industry’s biggest problem; it was revenues. Readers have been moving online in droves, resulting in plummeting print sales and print advertising revenues. Also as newspapers have found out, generating revenue from online advertising wasn’t easy. Advertising on the web works fundamentally differently from print. As Nicholas Carr points out:

A print newspaper provides an array of content—local stories, national and international reports, news analyses, editorials and opinion columns, photographs, sports scores, stock tables, TV listings, cartoons, and a variety of classified and display advertising—all bundled together into a single product. People subscribe to the bundle, or buy it at a newsstand, and advertisers pay to catch readers’ eyes as they thumb through the pages. The publisher’s goal is to make the entire package as attractive as possible to a broad set of readers and advertisers. The newspaper as a whole is what matters, and as a product it’s worth more than the sum of its parts.

When a newspaper moves online, the bundle falls apart. Readers don’t flip through a mix of stories, advertisements, and other bits of content. They go directly to a particular story that interests them, often ignoring everything else. In many cases, they bypass the newspaper’s “front page” altogether, using search engines, feed readers, or headline aggregators like Google News, Digg, and Daylife to leap directly to an individual story.

In other words, the true value of the newspaper – the bundle – is lost once online. It becomes a set of standalone articles, each responsible for its own revenue.

Here is where the Kindle can change the game back in favor of print. Since newspapers on the Kindle are subscription-based – just as in print – the bundle can now be restored. Only the medium will have changed, from paper to e-ink. In fact, if Amazon can track the location of a Kindle, it could even display local advertisements, in exactly the same way that local editions of a national newspaper do.

But not so fast. Newspapers (and their partner, Amazon) also need to understand why users moved online in the first place: the convenience of having unlimited news accessible instantly for free. This is what they need to deliver. For the bundle to work, the Kindle must make all its newspapers available for free, instead of charging an arbitrary subscription fee. Revenue from advertisements (on a per-impression basis, since per-click makes no sense in the absence of a web browser) should be split between Amazon (the medium) and the newspapers (the content).

Of course, we still don’t know how many online readers will bite and make the move to the Kindle. But the U.S. newspaper industry sure can’t afford to not try.

…a licensing program that gave hardware manufacturers the ability to build Kindle clones, along with an incentive to sell them at near-zero margins. Amazon would give those manufacturers access to the core Kindle hardware specs (there’s no real magic there anyway) and the right to call it a Kindle device so long as they also put the core Kindle software on the device. That software links the device to Amazon’s store, meaning downloads revenue flows through Amazon.

Amazon would then share a percentage of net margin generated from downloads with the hardware manufacturers.

Techcrunch has put into words what I’ve felt since the day the Kindle was announced. After all, Amazon isn’t in the hardware business at all; it’s in the product and content retail business. I can imagine that in the initial days of the Kindle launch, Amazon needed its own device to build a strong association between Amazon’s brand and the mobile ebook model. Now that that purpose is served, manufacturing and selling the Kindle hardware is an overhead that Amazon could avoid.

Just like Associates?

This isn’t very different from the masterstroke that Amazon played years ago with its Associates affiliate program. Before Affiliate Marketing became the wild jungle that it is today, Amazon launched a series of innovative tools – aStore, Omakase Links, Product Previews – to let publishers (people who owned websites/blogs/suchlike) add links to Amazon’s content onto their web pages. These publishers then earned a cut of the sale generated by clicks from the links on their web pages.

Kindle is Associates all over again, except instead of web-based tools, we’re talking hardware specs.

For instance, Amazon’s aStore let developers build their own focused online “stores” (which displayed Amazon’s books). (A religion-focused website would be able to draw viewers and sell that category of books better than Amazon.com itself.) In the same vein, a student version of Kindle with access to e-textbooks and additional bookmarking features would be better marketed and sold by a third party which is focused on only that market.

With such an Affiliate/Franchise/Licensing model, manufacturers would fall over themselves for a chance to access Amazon’s massive ebook and newspapers database – and a cut of the subsequent revenues.

The Mobile Opportunity

Once third party manufacturers have licensed the Kindle specs, they are no longer restricted to building anything that looks like the Kindle today. I can readily think of well-designed iPhone/iPod Touch ebook applications like the New York Times app. This fits in with American universities doling out iPods Touch and iPhones to their incoming freshmen.  A market for Nokia’s S60 devices would be many times larger.

What do you think? Would you purchase a Kindle application for your mobile device?

Aside: Of course, manufacturers would then be free to choose the carrier of their choice for wireless content delivery. That sure isn’t going to make Sprint-Nextel happy.

The Background

It’s no secret that the inbox paradigm we use today wasn’t designed to handle today’s volume of communication. Several start-ups have ideas to fix this, notably Xobni and Xoopit. Others want to go deeper and rethink the email client. Their biggest barrier to their entry is that data stored with an existing email providers (esp. webmail) is impossible to get at, short of copying that entire data. Zenbe, for instance, is an email client startup that is importing email from other POP3-enabled email accounts (including Gmail) to its servers.

The Opportunity

I’ll admit this is far-fetched, some way into the future, and has a relatively small target audience.

If users were to move their existing email into a database in an online storage service like Amazon’s S3, then several email clients could access this data, perhaps even simultaneously. If a user chose to move from one email client provider to another, the data itself – email, contacts, calendar, tasks – would stay intact; the new client would only have to create a new index for that data, and the old index could be deleted.

For users with email addresses from their own domain (such as rahul at rahulgaitonde dot org), even the email address would remain the same. The user would only pay Amazon for the storage and the bandwidth; the email service is still free, typically ad-supported. You could even use IMAP and access this from a desktop or mobile client.

The Upside

Innovation: Start-ups will be free to “fix” the traditional idea of an email client without having to worry about storing or importing tons of email.
Data ownership: Since the storage of is distinct from its interface, the user has far more control over their data than with today’s webmail services.

The Downside

Market size: The notion of having to pay for email storage seems anachronistic today. Most users also don’t care about what client they use. I contend that there will still be sizable numbers of users willing to pay, enough to make such an email service work.
Loyalty: While it is easier for such start-ups to acquire new customers, it is also easier to lose them – the cost of moving to a new interface is almost zero.
Failure point: Should the online storage service experience downtime, email will be unavailable.