Quote:
Originally Posted by Alisa
The main issue to me with the razor/blades analogy is that I don't think the margin is high enough on the books to outweigh the cost of the reader. A razor handle costs a few bucks to make and they sell me the blades at $15-$20 for a pack. The margin on those blades is huge. That model makes money.
The last time I saw a parts cost breakdown on the Kindle, it was around $140. That's just the hardware. Firmware, warranty coverage, distribution, etc.. all cost money, too. Let's say that's gone down since then and they could actually deliver the unit at a total cost of $150. Even at that low cost, they would have to sell a lot of books to break even. We already know that they lose money on the new releases and best sellers so it's up to the back catalog, periodicals and uploaded stuff to make up for that. We're looking at usually 35 cents to a few bucks revenue (not profit) on each of those. Even if they averaged a buck profit per sale of these non-loss-leaders (which I highly doubt) you'd be looking at having to make 150 sales in these categories just to break even. I think I've been pretty generous with all these estimates and it's still not doable. I don't think they're making much of a profit on the Kindle as it is but taking even a moderate loss on it would take quite a few sales to recoup since the books themselves are pretty low margin.
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Alisa, in the Gillette analogy, Gillette is the manufacturer of the blades and razors. With Amazon, the publisher is the manufacturer of the eBook while Amazon is the manufacturer (or license-grantor) of the eBook reader. Obviously, the publishers should cooperate with Amazon in order to maximize Kindle and eBook sales. I think that Amazon has enough clout to successfully negotiate such cooperation.
I don't feel that your objection takes Amazon's clout into account. Amazon is not stuck with low profit margins on eBooks.
An eBook costs nothing to manufacture after the first one is made. Amazon is free to refuse to give its best deals to publishers who refuse to cooperate.
But all this is inside baseball. My point is that if Sony and Amazon are going to link their readers to a particular store with DRM, they should make it obvious to the public why their product should be chosen instead of their competitors. And I suggest that the way to do that is to offer so many books in the package deal that the reader will seem free. The customer will feel like he has nothing to lose by investing in the reader if he knows he is going to get his money's worth of books out of it.