Quote:
Originally Posted by Mr. Dalliard
Is Amazon dumping this to kill off competition, or are its competitors simply overcharging?
Anyway, extremely tempting, but my heart is set on 1 9+" reader.
Perhaps I should just get one anyway, to tide me over.
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Neither.
It is a matter of overhead, supply chain logistics, and sheer volume economics.
Fixed costs (design, testing, software development, customer support, advertising, etc) get spread over a larger sales volume so that what makes up 20% of the cost when you're selling 100,000 units makes up 2% when you sell a million. This helps Amazon (and B&N, reportedly) in two ways; in setting their price and in buying components. It is easy for them to ask for and get volume discounts because component builders get to offset *their* fix costs across a large guaranteed volume.
Add in that Amazon owns major chunks of the IP that goes into Kindle, which other vendors have to pay for (ahem, ADOBE DRM support) and that they own massive datacenters that generate income off IT services so the back-end of Whispersync comes practically for free.
Finally, they can generate satisfactory revenue at lower profit margins; loss-leader pricing doesn't actually require the vendor to *lose* money.
All it means is they settle for less profit.
Amazon could generate US$5-10 million in profit off Kindle if they sold the hardware with just a 1% profit margin, whereas a vendor moving 100000 units would need a 10% margin to generate the same net income. Smaller vendors, moving say 25,000 units a year, could need as much as a 40% margin to get that high. And depending on their overhead and up-front start-up investment to *get* into the game they may very well *need* to generate millions a year in net to justify staying in the business.
eBook readers are no different than any emerging product category; you start with a few pioneers who establish the product category, this draws interest from competing entreneurs who look for ways to get a piece of the emerging market and establish themselves in the game. Some succeed, some fail. Eventualy the category itself succeeds or fails. If it succeeds it tends to go through a boom phase where the demand for the product explodes and the economics of the business change, this in turn drives a wave of consolidation so that where there were once dozens of aspiring players that were treading water under the original small-scale economics only a handful survive the transition to the newer economies of scale. This, in turn, drives a further wave of consolidation (or two or three) until you end up (eventually) with a mature market with a handful of established reputable players. This has happened before (over and over, in fact; in calculators in the 70's; in PCs in the 80's, in MP3 players in the late 90s, and HDTVs right now) it *will* happen again (I'm thinking webpads and tablets).
What is unusual about ebook readers is the apparent speed with which the economics have changed since B&N entered the game. It's not unheard of; competitive markets evolve faster than closed, regulated, protectionist markets. But still, in barely 9 months, the category volume break-even point has moved from tens of thousands to at least hundreds of thousands, possibly into the millions (depending on who else bows out in the next few months).
I think pretty much everybody around here can name the candidates at risk, no? And the scary thing is that Sony, expected to move a million or so units in 2010, can be plausibly projected as a casualty of the economic reset. And if Sony can't compete...
Things are moving way faster than previously expected. If I had to guess its partly because the iPad puts an upper limit on what a "premium" reader can reasonably charge, partly because of the anticipated wave of low-cost webpads headed our way, and partly that the biggest players Amazon and B&N *can* prosper with single-digit profit margins.
The future of eink readers is small and cheap; nobody can debate this. The future of reader *looks* to be in big and efficient. Expect more casualties among the small regional vendors, especially the late arrivals.