SAN FRANCISCO — Amazon is shaving another $25 off the price of its Kindle e-reader, this time with the help of advertisers.
The newest Kindle is $114. Amazon will sell its e-book reader at the lower price by showing ads as screen savers and at the bottom of the home screen, and by selling special offers, similar to Groupon and other daily deal sites.
The ads are the latest step in Amazon’s transition from e-commerce retailer to full-fledged digital media company. By selling ads that will show up next to digital content, Amazon is laying further groundwork that could enable it to someday sell tablet computers that would compete with Apple and Google Android tablets.
Amazon is also showing how far it is willing to go to remain a front-runner in the e-reader price wars. The new Kindle is $35 less than Barnes Noble’s least expensive Nook and $66 less than Sony’s least expensive Reader. It is also several hundred dollars cheaper than an Apple iPad.
“This is really about having a Kindle that’s more affordable,” said Jay Marine, director of Kindle at Amazon.
The device, known as “Kindle with Special Offers,” will have the same hardware as the most recent, $139 Kindle, with Wi-Fi, a one-month battery life and an 8.5-ounce body. But instead of the typical Kindle screen savers, like images of authors, Amazon will show ads from brands like Buick, Procter Gamble and Visa. The ads will also show up on the home screen, but they will not appear inside e-books.
Amazon will give users a say in which ads they see, borrowing a page from the playbooks of Hulu and TED.com. People can vote, either online or on a Kindle app called AdMash, for their favorite of two ads, like a close-up of a model’s face versus a photo of a jar of cream for Olay. They can also tell Amazon whether they want to see more or fewer ads with landscapes or illustrations, for instance.
Readers will also be able to get discounts through their Kindles. Amazon will open the offers to advertisers, but to start, the deals are all from its site, like $10 for a $20 Amazon.com gift card or 50 percent off a Roku streaming player from Amazon. By entering the daily deal business, Amazon is competing with Groupon and with LivingSocial, the group-buying service in which it is an investor. Mr. Marine said that Amazon’s service was separate from LivingSocial’s.
The ads and offers appear to be another significant step toward Amazon building its own tablet and competing more directly with the iPad, said James L. McQuivey, an analyst at Forrester Research who studies digital media and consumer electronics. Amazon opened an Android app store last month and has been hiring Android software developers.
An Amazon tablet could tie together the seemingly disparate parts of the company’s business, Mr. McQuivey said, including e-commerce, e-books, video and audio.
“I can so easily see them selling a tablet in the future at a dramatically reduced price,” he said. “To me, this is a way for them to test that out and to start talking to advertisers.”
When asked whether the new Kindle was a move toward a tablet, Mr. Marine said, “I don’t want to speculate.” He also declined to say when the Kindle would have a color or touch screen, both elements of the Apple iPad and Android tablets made by Motorola, Samsung and others.
By incorporating ads in the Kindle operating system — as screen savers and in the menu, where readers will find the list of offers — Amazon is also creating a new kind of ad that could be used for new business models. Publishers, who have been searching for new ways to market e-books to replace intriguing covers and bookstore displays, could give away sponsored e-books. Amazon could also build a group-buying service among Kindle owners.
Buick’s Kindle ads will show photographs of four of its cars and text that relates to reading, like a reference to a car owner’s manual, said Craig Bierley, director of advertising and promotions for General Motors’s Buick division. Because reading books is an intimate experience, he said he hoped people might pay more attention to the ads.
“The Kindle for many people is really a centerpiece of their entertainment, so their level of engagement with the device, and hopefully with the advertisers on it, will be higher,” Mr. Bierley said.
That type of engagement is the holy grail in advertising these days, said Bobby Calder, chairman of the marketing department at Northwestern’s Kellogg School of Management. Still, books are one of the last ad-free zones, and by showing ads on an e-reader, Amazon risks alienating some users, he said.
“There’s been research that shows that if you put an ad in an environment where people are highly engaged, that kind of intrusiveness can really backfire,” he said.
People could buy the less expensive Kindle and then avoid the ads by turning off Wi-Fi. Mr. Marine said Amazon did not think customers would do that because they would value the offers on the new Kindle, which is now available for order and expected to ship May 3.
“We think the response is going to be really positive because it doesn’t touch the reading experience,” he said.
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