Blog Post

State Department speaks out on Amazon Kindle deal

Update, 6/15/2012, 6:07 PM: It appears the deal will go through, as Jeff Bezos and Hillary Clinton are holding a press conference to announce the Kindle Mobile Learning Initiative next Wednesday. more here

On Monday, I reported that the U.S. State Department was signing a $16.5 million agreement with Amazon (s AMZN) to provide Kindles, content and service for overseas English language programs. Yesterday I was able to get on the phone with State spokesman Philippe Reines, who explained more about how the program will work and clarified some things that aren’t included in the available public documents. Some questions remain unanswered, and I’ve listed those at the end of this post.

Nothing is signed yet

First off, the State Department hasn’t yet signed a contract with Amazon. This document, Reines told me, is a request for proposal (RFP), though a reader points out that it is not labeled as such in the database — rather, it’s labeled as a Justification & Approval (J&A), intended to explain why this is a sole-source contract. I’m referring to it as a J&A throughout this piece. “At this point the ball is in Amazon’s court to come back with a proposal to us based on the request we gave them,” he said.

“We basically said, ‘We’d like your proposal to reflect the possibility of it being a five-year deal, with the total amount spent over this five years as $16.5 million,'” Reines said. He says “that’s not an expression by State of an intent to spend all that money and certainly not an obligation to spend all that money.”

Substantial non-device costs

Reines said that the State Department would spend $2.29 million in the first year of the program, and “the $16.5 million over five years includes a maximum of 7,000 units per year for a total of 35,000 over five years, and content and to a lesser degree, shipping and some other associate costs.” Those associate costs, like pushing serialized content to those Kindles, are mentioned in my original piece.

The $2.29 million figure for the first year, and the 7,000-per-year cap, are not available in any public documents online. I asked Reines for documentation of those figures and he said it “might be an internal thing.”

Reines added that the “guaranteed obligation of $2.29 million” in the first year is “broken down by an obligation to purchase, at minimum, 2,500 units, which would be roughly half a million dollars.” The ad-free Kindle Touch 3G — specified in the J&A as the device that State would purchase — is $189. The J&A also says each Kindle should come with a power adapter and a case. Assuming that State gets a 10 percent discount on each device, as Reines told the Atlantic, and that the power adapter + case adds another $20 to each device, that’s $475,250 for Kindles.

That leaves $1,814,750 for content, shipping and other costs. It’s a lot of money for content, especially since it appears that many of the e-books will be public domain. See more below.

If the contract goes through and is renewed after the base year for a total of five years, and if State purchases a total of 35,000 Kindle Touch 3Gs each priced at $170.10 during that time and each with a case and adapter valued at $20, that leaves $9,846,500 for content, shipping and “associate costs.”

What content comes preloaded on the Kindles?

According to the J&A, Amazon would preload each Kindle with 50 e-books.

In a previous pilot program, State purchased 6,000 Kindles for $984,000. That cost included only Kindles and not content, and Reines said the pilot included Kindles of “mixed variety,” not just the Kindle Touch 3G. This time around, “Amazon is doing the backbone work, so it’s not like we have 6,000 units around the world and everyone’s got to sit and download ‘Huckleberry Finn,'” Reines said.

So what kinds of books would Amazon be asked to preload on the Kindles? This is an important question because if most of the content that will be preloaded is already free in the public domain, as “Huckleberry Finn” is, that should bring content costs for this program down. I asked Reines for a list of the 50 books that would be preloaded on the Kindles and I hope to have that document soon.

For now, my impression from talking to Reines is that most of the books included on the Kindles would be in the public domain. “I don’t have a whole lot of examples of the past but I wasn’t entirely joking when I said Huck Finn,” Reines told me. “It’s stuff like that.”

Some remaining questions

Why is information still being doled out selectively? One surprise for me in reporting this story was that all the relevant documents were not available online. The State Department released  some information — such as that it could buy a maximum of 35,000 Kindles over a 5-year contract, and that the amount paid to Amazon in the first year would be a guaranteed $2.29 million — to news outlets, but these figures are still not available publicly. It’s difficult to report accurately when this information is not available for original reporting. I’m still seeking a copy of the document that lays these figures out.

Do all the devices have to have 3G if they’re being sent to countries that don’t have 3G networks? State’s J&A requires 3G; Reines suggested that State would actually order a mix of models as it did in its pilot program.

Could State negotiate a larger discount than 10% on the Kindles?

Are the non-device costs justified? I’m still waiting to find out which content will be preloaded onto the Kindles — whether it is primarily free, public domain books as Reines suggested, or whether Amazon will have to buy some of the books or make deals with publishers — and I look forward to receiving that list.

As for the various shipping and customer-service functions that Amazon would provide, as outlined by the J&A, I’m not able to calculate the value of those services with the information that’s available publicly. I don’t know how much it costs Amazon to provide a dedicated help desk, disable some features on the Kindles and provide data reports on usage, but I remain skeptical that these services are worth millions of dollars.

15 Responses to “State Department speaks out on Amazon Kindle deal”

  1. Why is the government, ignoring a certain area of people, if they do this, then people who are blind and have reading issues, will not be able to use this. NOT Fair government.

  2. Julie Trell

    I’m also curious where they are sending them? I’m trying to find the “Document A” where it lists the locations. Also @RalphF thank you for bringing up the excellent point of headcount and the need for PEOPLE to make sure this happens efficiently and effectively. (training, curriculum development, etc). And there is nothing wrong with Amazon (or whatever vendor was selected) for getting exposure for using their assets to address a need (access to information across the globe) .

  3. R Pollock

    I guess I’m not clear on who would have possession of these Kindles? Schools! How about giving Kindles to our Armed Forces personnel. Seems to me they deserve them more than some foreign nationals who hate Anericans anyway

    • Martin Iban

      Do you have any idea why some people around the world might hate America? Giving them an ereader will hardly make up for taking their natural resources, or worse, usurping their democracy – but at least they’ll have huck Finn.

  4. starbird2005

    If they bought the Kobo reader (which is pretty popular outside the US) it already comes preloaded with 100 books in public domain for 100 bucks.

  5. Andrew Martinez

    We’re talking about the amount that DOD spends on its coffee budget in one day. Seriously.

    Im just glad to see this relatively small amount of money be used to increase the ebook ecosystem – and the fact we’re putting literature into the hands of kids around the world is a bonus.

  6. Paula Campos

    If the primary purpose is providing reading capabilities & materials, then the $189 Kindle is overkill. My old Kindle originally sold for $179 & now costs something like $79. It offers tons of free books, some games and is 3g. I reading is the goal for third world countries, governmental funds could purchase far more Kindles for the same or lower price and accomplish the same goals. Who is setting the Kindle purchase agreement standard… Amazon (to increase sales) or the government (going more technology “might” arrive)?

    Lets do it, but lets do it wisely and most economically and efficiently.

  7. lenedgerly

    Your cost estimate for an adapter and case seems low to me. The adapter costs $9.99 and the cheapest case (with no light) is $39.99. So that’s more like $50 per device than $20. It doesn’t change your overall total much – $1.6 million left for content, shipping, and other costs in the first year instead of $1.8 million.

  8. Considering what the original RFP asked for (particularly video), I would rather see our government spend the money on a 7-inch tablet rather than a Kindle 3G. I think for what the government wants, there is no reason why the Samsung Galaxy Tab, the Nook Tablet, or the Kindle Fire couldn’t fill the need, be more versatile, and ultimately cost taxpayers less.

  9. David Ivey

    Even at 35,000 eReaders (7,000 per year over 5 years) that is still $471 per eReader ($16.5 million divided by 35000), and the services the government requires Amazon to provide are things they all ready provide for free.

  10. RalphF

    “I don’t know how much it costs Amazon to provide a dedicated help desk, disable some features on the Kindles and provide data reports on usage, but I remain skeptical that these services are worth millions of dollars.”

    Nice report Laura! My only additional though is on that last sentence. For reference, a “fully loaded headcount” can easily be 200-300K per year (salary, benefits, etc.). For 5 years that would be ~$1-1.2M per headcount right there across support and BI (business intelligence). Then possibly one time dev costs (headcounts for which could be even more expensive, but not required for all 5 years.

    My .02 but I’ve seen enough of this in the tech sector (outside of government) to know what a company like Amazon’s exposure is likely to be.