Is the free Kindle on the horizon?

Last month Amazon (NASDAQ:AMZN) dropped the price of its iconic e-book reader, the Kindle, to $189 and began offering a Wi-Fi-only version of the device for $139. That led to immediate speculation among the tech press that prices would soon fall below $100; however, one executive in the machine-to-machine device space thinks that number is well short of the mark.

According to Dale Calder, CEO of Axeda, it won’t be too long before the price point on a Kindle and other e-book readers reaches zero. The business model of Amazon and other e-book sellers lies in the service, not the hardware, and so they have every incentive to put their devices in customers’ hands and get them buying books, Calder said.

Such subsidies aren’t unheard of. The free phone with contract has been a staple of the wireless industry for years. Amazon’s business model is based on the transaction, though, not the subscription. An e-book reader customer could potentially be a voracious consumer, downloading hundreds of dollars in books and magazine subscriptions a month, or he or she could be a casual consumer plodding through a single novel over months. If Amazon can single out the former consumers, it has every reason to give them their hardware gratis, Calder said.

“The world of products is dead as we know it,” Calder said. “It’s all about services. And trust me, they make a hell of lot more money on the service than they do the hardware.”

Calder said he has no prior knowledge of Amazon or other e-reader vendors’ business plans, but he does have insight into the direction M2M is taking. Axeda provides the software platforms that manage hundreds of different M2M applications, ranging from ATM connectivity to vehicle location and telemedicine. In the vertical markets the free-hardware business model has already sunk in, he said.

Axeda customers such as Abbott Laboratories give away millions of dollars worth of free diagnostic equipment to hospitals, but it charges a fee for every reportable event that equipment records and transmits, Calder said. Another of Axeda’s customers manufacturers smart street signs, which it installs for customers for free, instead selling the data those signs collect, he added.

The retail consumer market may be very different from vertical markets, but Calder would argue that consumer services are even more prone to such free-hardware business models. Unlike a quarter-million-dollar diagnostic rig, an e-book reader can only be so sophisticated technologically. “The guys who are making this hardware differentiate themselves through services,” Calder said. “They’re finding there’s not much difference between one GPS device and another.”