July 30, 2010

The rumble of approaching price wars


Amazon's new Kindle has better margins than the company does

Amazon's new Kindle has better margins than the company does

“There must be something in the water at Amazon.com, given its commitment to price-cutting whatever the short-term pain,” remarks Martin Peers in a Wall Street Journal report. He explains that “The retailer’s decision to introduce a new, cheaper Kindle, just weeks after slashing the price of the existing version of the device, confirms that once again Amazon is taking the long view in trying to boost its share of a market “this time, e-books.” But it could also explain why the company continues to post lower-than-expected numbers, making Wall Street still wary.

As Peers also notes, “At $139, the new device is about a third the price of the original Kindle and nearly half what the second iteration was selling for just five weeks ago.” However, “That doesn’t mean the Kindle will become ‘mass market,’ as Amazon suggests; an occasional book reader is arguably no more likely to pay $139 for an e-reader than $259 ….”

What’s more, as he continues, there’s the fact that “Amazon also faces intensifying competition. Foremost is Apple. Its iPad, while pricier, offers far more functions than simply e-reading, and some may find it more user-friendly than the Kindle. Through June of this year, 3.3 million iPads had been sold.”

There’s also the Barnes & Noble Nook, which, says a New York Times report, is about to undergo a massive promotion campaign. According to Julie Bosman,

the chain will begin an aggressive promotion of its Nook e-readers by building 1,000-square-foot boutiques in all of its stores, with sample Nooks, demonstration tables, video screens and employees who will give customers advice and operating instructions.

By devoting more floor space to promoting the Nook, Barnes & Noble is playing up what it calls a crucial advantage over Amazon in the e-reader war: its 720 bricks-and-mortar stores, where customers can test out the device before they commit to buying it.

And the coming price war, says Peers in the WSJ, might “damp investors’ appetites for companies. Amazon may be following the only path open to it, but it still risks scaring those who don’t trust the company’s commitment to the bottom line.”

Meanwhile, one player says it’s staying out of the price war: “Sony won’t sacrifice the quality and design we’re bringing book lovers to lay claim to the cheapest eReader,” says the company’s “vice president of digital reading,” Phil Lubell, according to a Forbes report.

Nonetheless, most are predicted the $99 ereader is just a question of time.

Amazon head Jeff Bezos, meanwhile, in a USA Today report, says, “I predict we [Kindle] will surpass paperback sales sometime in the next nine to 12 months. Sometime after that, we’ll surpass the combination of paperback and hardcover.”

And I predict that he won’t show any proof whatsoever of that. And that everyone will believe him and print it as fact nonetheless.