I'm not sure why, but some analysts seemed a little surprised about Amazon's Wednesday announcement that it would begin offering Amazon e-books on the iPhone and iPod Touch and move beyond the confines of the Kindle.
First off, the company had effectively confirmed off-Kindle reading access in February, so it shouldn't have surprised anyone. Second, anybody who knows anything knows it's all about the razor blades (the e-books) and not the razor (the Kindle).
Like the game console world, the real profits aren't in the hardware but the software. Yes, the Kindle 2's hot now, but to reach a larger audience Amazon will eventually have to lower the price for the reader and shrink its margins. By contrast, the margins on e-books should remain pretty beefy and you can imagine all the cost savings involved when you don't have to deal with warehousing and shipping physical books. It's a great business model.
But there's just one problem. While Amazon might be able to find a market for $9.99 books on the Kindle, the iPhone/iPod Touch world is a very different place. Very few people are willing to pay that kind of money for any sort of application, let alone an e-book.
In the Apple app world, the sweet spot for selling anything seems to be less than $4.99--and more like $.99 or $1.99. Sure, you're going to get some best-selling series with almost cult-like followings (read: "Harry Potter" and "Twilight"), but the vast majority of books being "sold" on the iPhone are very cheap--and rightly so because the overall iPhone reading experience doesn't justify spending $10 (or even $5) on an e-book. (See Nicole Lee's in-depth piece on comparing the Kindle 2 reading experience with that of the iPhone's.)