Amazon: Paying a Price for Going Cheap

[kjk]

Originally Posted by carld

I'd say the same. I see lots of claims that Amazon is losing money on the new $139 Kindle, but it's all just supposition and maybe a bit of sour grapes.

lol, no sour grapes here-but yes, supposition, plus some experience in consumer electronics manufacturing costs. Amazon was selling a hardware device at $260 (at a profit, as Jeff Bezos made clear until last month.

Then, probably in response to Kobo/B&N getting aggressive, they dropped the price to $190 (27% drop). What do you think their margins were before the drop? According to one analyst:

Wolk cited concerns about profit margins. She estimated that at its previous price of $259, the Kindle's margins were about 15% to 20%. At its new price of $189, she thinks Amazon.com may wind up only breaking even on each sale.

That was on the existing Kindle 2, which at least was amortizing the tooling/manufacturing costs over a year and a half. The Kindle 3 has new plastics, new components, a better screen, and more memory. I just don't see how they are making a hardware profit on them right now-unless the K2 had incredibly high profit margins to begin with.

My .02 cents of supposition anyways I personally think its an incredibly aggressive move on Amazon's part, that the rest of the ebook market is going to have a tough time responding to.

[vaughnmr]

Analysts have been predicting the demise of Amazon since it's inception. Most of them aren't around anymore... Now I check with Amazon before I make any serious online buy.

When I bought my ereader a year ago, the only two players, really, were Sony and Amazon. I looked at the Sony in person at Best Buy, and wasn't impressed, especially with the price. And the software problems, so-so bookstore, poor support, poor service, etc. was horrible, just from what I was hearing from the users and my own download testing. About the same as the experience I had with my expensive Sony "feature" phone that cost more than my current Sprint HTC smartphone...

Bought the Kindle sight unseen, and I haven't looked back. Got Calibre (thanks Kovid) and now no ebook is a stranger to me, I'm not walled in by anyone but myself. Been to the beaches, parks, baseball games (met a lot of fellow ereaders there, mostly grandmas, but who's complaining...), read myself to sleep every night, and it hasn't missed a beat. I absolutely love it. It's performed better than any other electronic device I've ever owned, and I'm 56yo. Stuff that in your quality column.

And this is a refurb K1! Get over it folks, the Kindle is a fine device. The mobi format is just fine. Epub is ok too, but it's already turning into the "apple ipad epub standard" and "all other epub standard". Calibre makes a great library database and converts ebooks like no other software available, so I can deal with just about anything out there (except German ebooks, sorry).

[Skydog]

Originally Posted by vaughnmr

Bought the Kindle sight unseen, and I haven't looked back. Got Calibre (thanks Kovid) and now no ebook is a stranger to me, I'm not walled in by anyone but myself. Been to the beaches, parks, baseball games (met a lot of fellow ereaders there, mostly grandmas, but who's complaining...), read myself to sleep every night, and it hasn't missed a beat. I absolutely love it. It's performed better than any other electronic device I've ever owned, and I'm 56yo. Stuff that in your quality column.

[cvkemp]

I worked for 12 years for a Japanese Corp and I learned from them to always think for the long run not today only. The problem with the US companies and investors is that they want to see the money NOW. They never seem to thing of tomorrow. Walmarts and also most Grocery stores understand that you place something below cost are at cost to get customers in the store to buy other items that are over priced.
It works every time.

[vaughnmr]

Originally Posted by cvkemp

I worked for 12 years for a Japanese Corp and I learned from them to always think for the long run not today only. The problem with the US companies and investors is that they want to see the money NOW. They never seem to thing of tomorrow. Walmarts and also most Grocery stores understand that you place something below cost are at cost to get customers in the store to buy other items that are over priced.
It works every time.

Toyota???

You might want to re-evaluate that.

[Lilly]

Originally Posted by fjtorres

Sorry if its not clear, I was paraphrasing; hence the quotes.

My point is that *amazon* has the lock-in, not Apple. To say Kindle readers on iPad are ging to move to iBooks *at any point* is ludicrous because once you've bought into the Kindle platform you're locked-in to the kindle platform. Buying off iBook brings no advantage to somebody already buying Kindle books.

The only growth path for iBooks (and it *is* substantial) is from people who buy iPads who're *not* reading Kindle or B&N ebooks. But that growth is *not* going to come from Amazon's (or B&N) existing customers, just the newbies. His whole thesis is half-baked.

You are right about this. I saw a blog last week that the writer had an iPad and a Kindle 2. He said he has only purchased 1 book from the iBook store and that was just for experiment purposes. He said he use the Kindle software to purchase his books because he can read them in both his iPad and K2. He must be a MR member because he did conclude while the Kindle format can be liberated, iBook who is using ePub with their own DRM scheme has yet to be. He did say the iBook displayed better on his iPad but the negatives outway the positive (the convenience of leaving his iPad at home and taking his K2 and still be able to continue reading his book).

[cvkemp]

No way on the Toy I have been in electronics and software my working life. I leave cars to the ones that hopefully know cars.

[murraypaul]

Originally Posted by fjtorres

My point is that *amazon* has the lock-in, not Apple. To say Kindle readers on iPad are ging to move to iBooks *at any point* is ludicrous because once you've bought into the Kindle platform you're locked-in to the kindle platform. Buying off iBook brings no advantage to somebody already buying Kindle books.

Unless you are talking about people who already own Kindle hardware as well as an iPad I just don't get what you are saying. There is no lock-in. I could buy book 1 from Amazon, book 2 from B&N, book 3 from Borders and book 4 from Apple. I could read them all on one device. It is as far from lock-in to one bookseller as you can get. No advantage, and no disadvantage, people can choose whichever place has the best selection/price/app features, and reevaluate that choice each time they shop.

[fjtorres]

Originally Posted by kjk

I just don't see how they are making a hardware profit on them right now-unless the K2 had incredibly high profit margins to begin with.

My .02 cents of supposition anyways I personally think its an incredibly aggressive move on Amazon's part, that the rest of the ebook market is going to have a tough time responding to.

1- If iSupply can be believed the K2 build cost was $185 at *launch*, when it sold for $359. (100% profit margin). Plus, we know component costs have dropped some since then.

2- Amazon isn't being overly aggressive at all; they are merely *reacting* to nook. Remember them? Their primary competitor in the US? The ones who dropped connected readers to under $200 first? Who introduced the $149 Nook WiFi last month?

When you look at the component that go into Nook and into Kindle, it is easy to see why Kindle runs $10 less than nook; the membrane keyboard is cheaped than the LCD touchscreen and Amazon doesn't pay royalties to Adobe for ePub. Odds are, Amazon is making as much profit as nook on the hardware. *my* guess, for what its worth is that its probably on the order of $10-20. But I seriously doubt they're losing a single penny.

I think *both* companies are simply benefitting from economies of scale *and* the big order cancelled by the china mobile telecom.

[kjk]

Originally Posted by fjtorres

Odds are, Amazon is making as much profit as nook on the hardware.

And again, my .02 cents of supposition-I don't believe B&N is making a hardware profit on their current Nook pricing.

[Purple Lady]

If Amazon's long term goal is to build book sales, why don't they offer other formats? Most others have joined the EPUB bandwagon so why not Amazon too? I might actually buy something from them if they used ADE EPUB. I can remove DRM from everything else but Amazon since the Kindle for PC upgrade. I did try the new version of unswindle, but it still didn't work for me.

[brecklundin]

Originally Posted by kjk

I'd be very surprised if they are even breaking even at that price point, unless their quarterly order volumes are in the millions.

Ya might wanna refresh your memory on the iSuppli teardown costs of the K2 done well over a year ago now. Back then WITH 3G and it's associated overhead, the teardown was around $185 and the reader was something like $359 or whatever, so if the 3G is running ~$40 still and other components obviously dropping in price as well as R&D recovery since then, it could easily be that the K3 wifi device costs under $80 to build, even with the new display. FYI the cost of the wifi is likely under $2 hardware and all...

[kjk]

Originally Posted by brecklundin

Ya might wanna refresh your memory on the iSuppli teardown costs of the K2 done well over a year ago now. Back then WITH 3G and it's associated overhead, the teardown was around $185 and the reader was something like $359 or whatever, so if the 3G is running ~$40 still and other components obviously dropping in price as well as R&D recovery since then, it could easily be that the K3 wifi device costs under $80 to build, even with the new display. FYI the cost of the wifi is likely under $2 hardware and all...

I take iSuppli's numbers with a huge grain of salt.

[fjtorres]

Originally Posted by kjk

I take iSuppli's numbers with a huge grain of salt.

Seen anything better?
Or should we just make them up because we don't like what they say?

iSuppli and Digitimes may not be the Oracle of Delphi but their numbers are all we've got. And they're consistent with the vendors' behavior.

[kjk]

Originally Posted by fjtorres

Seen anything better?
Or should we just make them up because we don't like what they say?

iSuppli and Digitimes may not be the Oracle of Delphi but their numbers are all we've got. And they're consistent with the vendors' behavior.

lol, no reason to get defensive, just my opinion. We shouldn't "make them up" regardless-this is all just supposition, right?

And its not that I like or don't like what they have to say. I just don't trust their methodology, or their conclusions.

And I have seen more detailed analysis and estimates for product teardowns, but they are never given out for free, and never before a product is actually available.