Can ad-supported hardware trump ad-supported content?

When it comes to online content, consumers by and large prefer to pay for it in attention rather than currency. As a result, it’s no surprise that far more publishers have built successful ad-based business models than paid content business models.

Advertising, of course, usually isn’t a path to easy money for publishers. Yes, advertisers love the internet, but digital still accounts for a minority of total ad spending, and advertisers generally pay less for digital ads than traditional ads.

That, however, isn’t stopping from trying to find out if advertising can support more than just content.

Earlier this year, the company launched an ad-supported version of its popular Kindle e-reader. The deal: for a price reduction of $25, consumers receive a fully-functional Kindle that displays ads when the device’s screensaver kicks in.

According to the Business Insider’s Dan Frommer, consumers seem to have some interest:

In dozens of checks of Amazon’s “Bestsellers in Electronics” page, the ad-supported, Wi-Fi-only Kindle is consistently the best-selling overall Kindle, followed by the no-ads version.

The 3G version is less consistent: Sometimes, the ad-supported version is listed as selling better than the standard version; sometimes it’s not. (Perhaps this is a reflection that the discount, percentage-wise, isn’t as big for the 3G version).

Does this signal a “future of ad-supported electronics“? Perhaps.

Obviously, giving away hardware gratis would, in many instances, require a hefty subsidy. But Amazon shows that you don’t necessarily have to give the device away to get consumers interested; a modest discount will apparently do.

Interestingly, in some circumstances, the economics of ad-supported hardware may be more compelling than ad-supported content.

To recoup its $25 subsidy, Amazon only needs to generate $25 in ad revenue, and it has the life of the device to do this. Conceivably, the company may be able to do this relatively quickly (read: in a year or less) if its screensaver ads generate reasonable eCPM.

Ad-supported publishers, on the other hand, have a challenge: not only do they need to generate substantial ad revenue, they need to do so to cover costs that are ongoing. When the content stops coming, the ad revenue stops flowing.

None of this, of course, means that ad-supported hardware will be more successful than ad-supported content.

Amazon’s experience with the Kindle may or may not prove viable long-term, and it remains to be seen how many other devices are well-suited to a similar model.

Nonetheless, advertisers and hardware vendors will certainly want to pay attention to it and explore opportunities as they emerge.



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