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Originally Posted by BenLee
You may be right. I think right now we're all ecstatic about the lower prices, but Barnes and Noble may soon regret the cut after the initial buy craze dies off. Nook sales will return to normal and so will ebook purchases, except they will be earning less upfront now. Plus, they dragged Amazon along for the ride as well.
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Maybe not.
The ebook industry is only *now* starting to reach mainstream awareness.
For us 'rounds these parts ebooks are stuff we've been doing since the last century but for many, ebooks started when Oprah held up the Kindle on her show.
In immature, growing markets the normal price elasticity of most markets is amplified by the added visibility and network effects that come from a larger installed base. (More people get to see the product in the wild. Eventually, most likely buyers either have one or know somebody who does.) The increased sales (of readers and books) just may offset the price cut, assuming (big assumption) the build costs *haven't* come down since last November. Which, odds are, they have.
Truth is, we don't really know how the economics of these walled-garden readers work out. Except for the screens, the things are built with smartphone components and tech so there's a lot of leverage driving component costs down. And the components are relatively cheap to start with. (We're not talking 500 million transistor 3GHz chips, after all.) Beyond that, only the actual vendors know what the business looks like.
Anybody out there know the attach rate of ebooks/per reader? B&N does.
Anybody out there know how a $50 price cut affects sales volume? B&N does. (Remember the $50 gift cards? The offer ended just before the $60 Nook cut.)
Odds are, B&N knew, going in *exactly* what they're doing.
And Amazon matching (and even going a tad lower) was hardly a surprise.
Again: how much does it cost to build a Nook/Kindle? B&N knows *their* costs and probably can make a good guess at Amazon's. *We* know Kindle is cheaper to build (slower CPU, membrane keyboard instead of touch panel, no WiFi) but not how much cheaper. Its pretty clear that its at least $10 cheaper.
For all the fun of the "price war" talk, so far its more like Nook fired a shot across Kindle's bow and Kindle shot back their own warning, with both parties moving on to survey the damage to the bystanders. Given that B&N *hasn't* matched the $189 it's clear they're satisfied where things stand.
And, unless somebody else gets aggressive (say, Sony introducing a connected reader that can sell for $99) the current truce should hold at least until K3 is announced.
By contrast, last year's three way bestseller price war between WalMart, Amazon, and Target lasted several rounds until they all ended up at the exact same loss-leader price.
Personally, I suspect that, screen aside, these things are really really cheap to build in large lots (say hundreds of thousands a year) and getting even cheaper. After all, the electronics in all of them are far from leading edge tech. And that is why, as I've said before, the future of dedicated ebook readers is both small and cheap.
Even without price wars, ebook readers are headed for drugstore blister-pack marketting, sooner or later.
The only questions are how long til we get there, and will there be enough profit (mostly from the book sales) that the vendors will want to rush to get there.
In fancier terms: what's the slope of the adoption curve today? Are we at the base of the sigmoid or the top? I think B&N's price cut may be an experiment to see how the market reacts.