Amazon: New $189 Price Results in Tipping Point for Growth

[kjk]

Originally Posted by carld

I don't think that cnet article is worth the electrons it took to send it.

>Kindle sales also tripled when prices dropped from $359 to $299.

To which I say, so what?

I think he's saying that the sales increases would be more impressive if they happened on their own-not spurred by one time (two time?) price cuts. It isn't sustainable for companies to have to rely on merely on price cuts to spur growth. If Amazon hadn't cut the price of the Kindle in light of B&N's bold move, and STILL reported tripled sales..that would have been pretty huge.

Yes, we get it. Amazon is a bunch of evil liars and the Kindle sucks rocks.

Is that really how you read that article?


Anyways, I'm looking forward to Amazon's earnings this Thursday-usually this kind of information comes out as part of the earnings report, not in a Press Release just two days before. Could mean they have other news to focus on.

[Nathanael]

Originally Posted by pilotbob

I expect this statement is patently false and only said because you know Amazon won't give Kindles away anytime soon based on their current sales.BOb

OK, you got me. If someone offered me a Kindle for free, I would take it. Then I'd sell it and apply the proceeds toward a more useful reader. I REALLY have no interest in a Kindle.

Of course, my original statement was hyperbole, and should be read that way, but it isn't far from the reality: about eight months ago, when I was shopping for a reader, an acquaintance, who had upgraded to a K2 offered to sell me his old Kindle for for $50. I declined, and bought a Hanvon for $189. I was quite happy with the Hanvon even at nearly quadruple the price.

Originally Posted by pilotbob

Also, if you did get that free kindle you would be able to read those 50k ebooks you have on it just as well as any other reader.
BOb

If you consider unformatted text-only a pleasant reading experience. When the Kindle supports EPUB or even HTML or LIT I absolutely promise I'll take another look (OK, it has PDF, but PDF is hardly ideal for leisure reading.)

But you didn't comment on my other point -- licensing vs. ownership.

Thanks for the reply,
Nathanael

[carld]

>It isn't sustainable for companies to have to rely on merely on price cuts to spur growth. If Amazon hadn't cut the price of the Kindle in light of B&N's bold move, and STILL reported tripled sales..that would have been pretty huge.

Price reductions drive up sales, that's the nature of competition and the market. The scenario you describe wouldn't be just pretty huge it would be a freakin' miracle.

>Is that really how you read that article?

No, it's the sense I get from Nathanael's posts.

[pilotbob]

Originally Posted by Nathanael

But you didn't comment on my other point -- licensing vs. ownership.

Because the situation is the same no matter where you buy DRM infected ebooks... I don't see how this is specific to Kindle.

BOb

[Nathanael]

Originally Posted by pilotbob

Because the situation is the same no matter where you buy DRM infected ebooks... I don't see how this is specific to Kindle.

BOb

You're right that DRM issues are not Kindle-specific. But the Kindle compounds the problem with its poor support of open formats. I agree that the Kindle user experience is second if you don't mind DRMed content locked up in a proprietary, Kindle-only format (once a Kindle user, always a Kindle user). But if you want to read open content, almost your only option is unformatted plaintext which, in terms of a pleasant reading experiences, is just about one step up from useless.

I don't mind my ereader supporting DRM. I'm just not interested in a reader that ONLY supports DRM.

--Nathanael

[Nathanael]

Originally Posted by carld

>No, it's the sense I get from Nathanael's posts.

Hmm, don't recall using either "evil" or "liar". My point was it's a press release, and all press releases, whether they come from Amazon or the White House Press Secretary, are "lies" (if you must) -- insofar as they're truths selectively spun in carefully controlled contexts.

The bottom line is one should NEVER take a press release at face value. That was the point of the CNET article, and my point as well. Bereft of context, "Kindle sales triple!" is meaningless aside from marketing spin. If fault lies anywhere it's with the press that continues to swallow press releases hook, line and sinker. Amazon is just playing the game well.

As to whether Amazon is "evil", check my initial post in which I declared my undying admiration for Bezios' marketing genius, and acknowledged Amazon's unique role in expanding the ebook market (for which, make no mistake, I am grateful). As a marketing tool and content delivery channel, the Kindle is wonderful. As an ebook reader, not so much.

Where Amazon loses me is in its DRM-only approach to the Kindle, the emphasis being on "only". Kindles are great, as long as you don't try to break them out of the Amazon ecosystem. For those of us who don't wish to be locked into a single ecosystem, however, they're not such wonderful devices.

--Nathanael

[murraypaul]

Originally Posted by Nathanael

I was pretty sceptical of the report -- sounded like one of those typical press releases that the media likes to snap up and run with with its critical thinking switched to off. But this CNET review did a much better job of deconstructing it:

http://reviews.cnet.com/8301-18438_7-20011038-82.html

Some flags it raises:

Kindle sales also tripled when prices dropped from $359 to $299.

From what I've read of the latest report, they aren't claiming that Kindle sales have tripled, but that the rate of increase of Kindle sales has tripled. So if they were seeing 5% month-on-month growth, they are now seeing 15%. (Made up figures)

[Nathanael]

Originally Posted by kjk

I think he's saying that the sales increases would be more impressive if they happened on their own

Thanks for clarifying that.

Yes, without context, saying "We lowered our price and sales went up!" is the business equivalent of, "And in today's weather -- the sun rose in the east."

I suspect it's a temporary sales spike, spurred by fence sitters taking the plunge. If I'm right, sales will decline next quarter.

The other question, of course, is whether it's a sustainable price. Amazon is undoubtedly taking a loss on every sale, treating the Kindle much the way MS treats the X-Box -- as a loss-leader, hoping to make up the difference in game sales.

What's interesting is that, in Amazon's case, it also loses money on ebook sales (or at least did; with this new agency model scheme, I don't know), so I don't know where Bezios intends to make up the shortfall. Perhaps he's hoping to use Amazon's market clout to force pricing changes on the industry more friendly to Amazon.

--Nathanael

[fjtorres]

Originally Posted by Nathanael

Amazon is undoubtedly taking a loss on every sale, treating the Kindle much the way MS treats the X-Box -- as a loss-leader, hoping to make up the difference in game sales.

Uh, no. That is factually incorrect.
Both Amazon and Microsoft sell the hardware at market prices. Neither is a loss leader.

Amazon in particular it is well known that Kindle2 launched with 100% markup.
http://www.isuppli.com/News/Pages/Am...n-Reveals.aspx

Since then the switch to AT&T wireless and normal component reductions brought costs down yet they still maintained the price as high as they could. They only cut the price as a response to Nook's price cut.
That is hardly loss-leader pricing and has been discussed to death around here since the recent baseline price reset.

As for XBOX, it is equally well-documented that the console reached breakeven back in 2006 and has been producing hardware profits ever since.
http://www.gamasutra.com/php-bin/new...hp?story=11833
They have been generating significant profit since at least 2007:
http://www.next-gen.biz/news/isuppli...ntinue-decline
Finally, it is hardly a secret that the new 360s with the single -chip architecture at $299 has a profit margin of over US$100.

Sony, on the other hand, was still sustaining hardware losses on PS3 as recently as December 2009.
http://www.isuppli.com/News/Pages/So...-3-Design.aspx

You're apparently new 'round these parts it seems, so you may not be aware of these old hashed out discusssions. Thus, a word of advice: stick to opinions in defending your personal biases. You can choose to ignore reality in your decision-making all you want and few will call you on it but claiming factual basis for myths will get challenged every time.

Toodles!

[pilotbob]

Originally Posted by Nathanael

But if you want to read open content, almost your only option is unformatted plaintext which, in terms of a pleasant reading experiences, is just about one step up from useless.

I'm not sure why you say that. And if that is the case they aren't in ePUB either.

Many places have DRM free content in the mobipocket format which the Kindle displays perfectly well. Those places include Mobileread, Feedbooks, Smashwords, Fictionwise, Bane, Webscriptions, etc.

BOb

[TallMomof2]

And if the ebook is not DRM infested it's trivial to convert with Calibre.

[J. Strnad]

"They only cut the price as a response to Nook's price cut."

And B&N only cut the nook price because Kobo entered the market through Borders at $150, IMO.

[fjtorres]

Originally Posted by J. Strnad

"They only cut the price as a response to Nook's price cut."

And B&N only cut the nook price because Kobo entered the market through Borders at $150, IMO.

True. That likely factored into it; they really can't let Borders get too much traction.

But also because they *could* build a WiFi Nook to sell for $149.
B&N is no more in business to lose money than Amazon is.

I'm not sure we've seen the end of hardware reader price cuts for the year but I doubt it'll be anything like the Nook's 40% cut to the price of admission.

[Fbone]

Originally Posted by fjtorres

Uh, no. That is factually incorrect.
Both Amazon and Microsoft sell the hardware at market prices. Neither is a loss leader.

Amazon in particular it is well known that Kindle2 launched with 100% markup.
http://www.isuppli.com/News/Pages/Am...n-Reveals.aspx

Since then the switch to AT&T wireless and normal component reductions brought costs down yet they still maintained the price as high as they could.
That is hardly loss-leader pricing and has been discussed to death around here since the recent baseline price reset.

To be fair according to your link many costs are not included in the $185 build price they calculated in April 2009. From the link ...

"Not included in this analysis are costs above and beyond the material manufacturing of the core device itself—i.e., the cost of intellectual property, royalties and licensing fees; those not already included into the per component price—software, software loading and test, shipping, logistics marketing; and other channel costs. These costs are not included because teardowns cannot reveal this type of information."

And some costs may have increased like manufacturing and shipping.
I also dont believe Amazon is losing money on each Kindle sale but their profit per unit may now be very small.

Added: Btw, the nook 3G costs seem to be less than the kindles. B&N may be able to drop prices further.
http://www.isuppli.com/Teardowns-Man...-Analysis.aspx

[fjtorres]

Originally Posted by Fbone

I also dont believe Amazon is losing money on each Kindle sale but their profit per unit may now be very small.

Very likely. Probably in the low teens instead of 100%.
On the other hand, their ebook profits are significantly higher than back when the K2 was introduced. And growing.