MobileRead Forums - View Single Post - Kindle US Marketshare at 45%, Sony at 30%

Kali Yuga · 08-20-2009, 11:52 PM

Clearly the "razor" model works... for some businesses. That hardly means they work for any and all businesses.

Let's say the following comes to pass: publishers drop the wholesale ebook cost to $5, Amazon spends another $2 per book on infrastructure, so that's $3 profit per ebook for Amazon, which is a very optimistic scenario. If they give a new Kindle owner a $300 credit, that one customer will have to buy 100 ebooks -- or spend nearly $1,000 on ebooks -- in order to make up for that lost revenue. And that's after that customer has downloaded $300 worth (30 full-priced ebooks) from the Kindle store. Reduce the proposal to $200 per Kindle, and you're looking at breaking even with 67 books (after the customer gets 20 books), or $670.

This is a very high price to acquire a single customer; even a massive marketing campaign would bring a better return on a per-customer basis.

In contrast, it costs Gillette maybe $5 or $10 to capture a new customer, and they likely recoup that cost with the purchase of 1 or 2 sets of blades. Low customer acquisition cost, fast recapture of the expense.

Or, compare this to a cell phone contract. Let's say Sprint subsidizes a cell phone, and invests $200 to capture a new customer. The customer accepts a 2-year contract at $75 a month, and a $250 penalty to quit early. This works because the customer's payments are a) larger, b) regular, c) predictable, d) accepted as "normal" by the customer, e) has an enforceable term to recapture the cost of acquiring the customer.

Can you think of a viable, easy and consumer-friendly way to lock a Kindle owner into a contract to buy 30, 60, or 100 ebooks...?

Meanwhile, the Kindle's main competition is Sony, a hardware-oriented company -- which means Amazon can try to get a profit off the Kindle and know it will still be competitively priced. Not only that, but they've become a formidable competitor in a short period of time, with minimal marketing and/or per-customer acquisition cost -- i.e. they're kicking ass without needing to throw hundreds of dollars at new Kindle owners. And of course, if they do manage to reduce the wholesale price of an ebook -- a process that seems completely independent of the sales figures of the Kindle anyway -- Amazon is just going to pocket that as revenue, as they've been planning from the start.

So, explain to me again what the advantage is of Amazon slashing their revenues by $200 or $300 per customer? 'Cause I don't see it. And neither does anyone else in the industry, as far as I can tell, since no one is doing it.

P.S.: Bezos discussed his reasons for the Kindle / Kindle books pricing model at length a few months ago. If you can bear to sit through it, a video is here.

08-20-2009, 11:52 PM	#45
Kali Yuga Professional Contrarian Posts: 2,045 Karma: 3289631 Join Date: Mar 2009 Device: Kindle 4 No Touchie	Clearly the "razor" model works... for some businesses. That hardly means they work for any and all businesses. Let's say the following comes to pass: publishers drop the wholesale ebook cost to $5, Amazon spends another $2 per book on infrastructure, so that's $3 profit per ebook for Amazon, which is a very optimistic scenario. If they give a new Kindle owner a $300 credit, that one customer will have to buy 100 ebooks -- or spend nearly $1,000 on ebooks -- in order to make up for that lost revenue. And that's after that customer has downloaded $300 worth (30 full-priced ebooks) from the Kindle store. Reduce the proposal to $200 per Kindle, and you're looking at breaking even with 67 books (after the customer gets 20 books), or $670. This is a very high price to acquire a single customer; even a massive marketing campaign would bring a better return on a per-customer basis. In contrast, it costs Gillette maybe $5 or $10 to capture a new customer, and they likely recoup that cost with the purchase of 1 or 2 sets of blades. Low customer acquisition cost, fast recapture of the expense. Or, compare this to a cell phone contract. Let's say Sprint subsidizes a cell phone, and invests $200 to capture a new customer. The customer accepts a 2-year contract at $75 a month, and a $250 penalty to quit early. This works because the customer's payments are a) larger, b) regular, c) predictable, d) accepted as "normal" by the customer, e) has an enforceable term to recapture the cost of acquiring the customer. Can you think of a viable, easy and consumer-friendly way to lock a Kindle owner into a contract to buy 30, 60, or 100 ebooks...? Meanwhile, the Kindle's main competition is Sony, a hardware-oriented company -- which means Amazon can try to get a profit off the Kindle and know it will still be competitively priced. Not only that, but they've become a formidable competitor in a short period of time, with minimal marketing and/or per-customer acquisition cost -- i.e. they're kicking ass without needing to throw hundreds of dollars at new Kindle owners. And of course, if they do manage to reduce the wholesale price of an ebook -- a process that seems completely independent of the sales figures of the Kindle anyway -- Amazon is just going to pocket that as revenue, as they've been planning from the start. So, explain to me again what the advantage is of Amazon slashing their revenues by $200 or $300 per customer? 'Cause I don't see it. And neither does anyone else in the industry, as far as I can tell, since no one is doing it. P.S.: Bezos discussed his reasons for the Kindle / Kindle books pricing model at length a few months ago. If you can bear to sit through it, a video is here.