Kindle’s Killer App: A Price Cut

Remarking on the iPad iBooks application in January, Apple CEO Steve Jobs said, “Amazon’s done a great job of pioneering [e-book] functionality with the Kindle. We’re going to stand on their shoulders and go a little further.”

It was a backhanded compliment, but also a threat. What will Amazon (AMZN) do if Apple (AAPL) delivers on it, as early reviews of the iPad suggest it might? If the iPad succeeds in capturing e-reader mindshare, and the market decides the iPad is indeed a direct competitor to Kindle, how should the retailer respond?

Simple: With a price cut. Piper Jaffray analyst Gene Munster suggests that Amazon drop Kindle’s price to $149 from $259, which seems reasonable (manufacturing costs permitting).

By widening the pricing gap between the two devices, Amazon might temper the maybe-I-should-just-spend-the-extra-money-and-get-the-iPad hesitancy that, let’s face it, a lot of potential Kindle buyers are probably already experiencing.

At $149, the Kindle as single-purpose reading device is a pretty compelling proposition, particularly given the selection advantage the Kindle store has over the iBook store. It’s an impulse buy.

At $259, it starts to become “half the money I need to buy an iPad.”