Amazon’s Patents Point to Kindle E-Book Ads

Amazon is taking steps toward integrating ads into its Kindle e-books with two patents filed that outline the process of incorporating targeted advertising in on-demand generated content.

The plan is to serve ads throughout Amazon’s (NASDAQ: AMZN) Kindle e-books, possibly between chapters or after every 10 pages, and in margins, according to the document.

“For instance, if a restaurant is described on page 12 …the advertisement page image… either on page 11 or page 13, may include advertisements about restaurants, wine, food, etc., which are related to restaurants and dining,” is one example in the patent filing.

The patents, “On-Demand Generating E-Book Content with Advertising,” and “Incorporating Advertising in On-Demand Generated Content,” were filed in December 2007 and were published July 2 in the U.S. Patent and Trademark Office application database.

Amazon isn’t named on the application — the lead name on the document is Hanning Zhou, a group manager of Amazon’s Print-on-Demand Group, who was also involved in creating scanning technology for the Kindle.

In addition to advertising, a cross-reference feature would provide additional information on relevant topics, annotations and support print on-demand copies in PDF and other formats.

“For example, if the customer requests content about ship building, other content about the history of ship building may be added to the requested content for inclusion in the requested printed content,” according to the patent application.

Tracking the ads would rely on a type of numeric code placed on the ads that would also let advertisers know that readers viewed them. The snippet might associate the code and the ad with a specific consumer if the person logs into a profile page.

The patent documents also indicate that readers could interact with the ads, for instance, to get more information.

Beating Google to the punch?

The news has ramifications on several fronts, according to e-book industry researchers. First, some analysts see it as defensive move to keep Google (NASDAQ: GOOG) from dominating any future e-book ad opportunities as it continues to digitize books in the public domain.

E-reader served ads could also be seen as a benefit for newspapers and magazines seeking new ways to gain ad revenue, though that will depend on the yet-to-be-determined business model.

For e-books, long-term success may hinge on allowing readers, who may balk at ads, to opt out of ad-based formats.

But either way, advertising in e-books is inevitable, Forrester analyst Sarah Rotman Epps told

“Looking at the two big players, you’ve got Google, which has been very aggressive at digitizing books in the public domain that are free through the Sony bookstore, which has access to some 1 million books. Google doesn’t sell anything yet to date, but its business is selling advertising, so it seems logical they’ll move in that direction, and be serving ads in e-books.

Now we learn Amazon is in the patent space. Clearly Amazon doesn’t want to cede the e-book ad market entirely to Google,” said Epps.

For newspapers and magazines, the move makes sense, said Epps. “The ad model will encourage those publishers, and readers are used to ads in those publications, but for books it’s a new idea, so there may not be a big incentive. It could even be a disadvantage because some book publishers may not want the content ‘polluted’ by ads.”

Next page: New business models

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New business models

However, she said that a business model for ads in e-books similar to cable TV subscriptions could be successful with readers.

“It will be a big change for consumers to have ads in books, but if they can opt out, have a choice, to pay slightly more for an edition with no ads, uninterrupted content, that’s a model that’s already familiar to consumers from cable channels such as HBO. You pay more, but there are no ads,” Epps said.

“But our data shows that cheaper content is a big draw when considering the purchase of an e-reader, so if readers can save money on books, they may be willing to accept ads for cheaper e-books.”

Even newspaper publishers used to dealing with advertising, however, seem to be wondering what kind of revenue sharing formulas would be involved.

“This could be good news for the newspapers selling e-edition subscriptions through It does leave the question of who sells the ads and how the revenue is distributed,” reads the Newspaper Association of America’s Circulation Blog.

Epps agrees. “The big question is will publishers be left out in the cold? If the only companies profiting off the ads are going to be Amazon and Google, that spells trouble. If publishers are smart, they won’t let that happen,” she said.

While it’s too soon to tell what type of ad revenue deal would be struck between book, magazine and newspaper publishers and Amazon for their respective content, the e-reader market is already experiencing different types of revenue mixes for non-ad supported content happening now.

In early June, Google said by the end of the year it hopes to have a partnership program in place that allows authors to sell digital versions of their books online.

Google’s e-book partner program appears to offer advantages that front-runner Amazon lacks with its proprietary system that only supports iPhones, iPods and Kindles — variety in the way readers access the digital books, and perhaps, a revenue split that’s more favorable for authors.

Who has the better revenue sharing?

Google has said it would allow publishers to set prices for e-books sold through the new service, while, according to a report by Epps, some newspaper publishers claim they get 30 percent of subscription revenue while Amazon keeps 70 percent.

On the other hand, it’s been widely reported that Amazon is losing money on some e-books — it reportedly pays book publishers $12 to $13 for the digital copies of books from the New York Times best-seller list that it sells for $9.99.

Meanwhile, Google isn’t the only competitor in the e-book market. In late July, Barnes & Noble (NYSE:BKS), in a partnership with hardware vendor Plastic Logic, grabbed headlines by saying it will be the exclusive e-bookstore for the Plastic Logic e-reader, due out in early 2010. Pricing and other details have yet to be made public.

Also this week,reports surfaced that Sony is updating its e-reader line with two new models, the PRS-300 for $199 and the larger PRS-600 for $299.

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