The eBook reader wars

[wraith808]

So, Barnes and Noble reduces the price of the nook to $199 ($149 for the wi-fi version), and without fanfare, Amazon reduces the price of the Kindle to $189.  What gets me about this, and what no-one has commented on, is if Amazon reduced the price that steeply, that soon- that most likely means they had planned this for a while.  After all, you can't reduce prices without some research into what the minimum price you can charge for an item that has upstream costs without ramifications.  This means that they had the *ability* reduce the price for ... how long?  And kept charging the higher price until someone else moved.  So, if the nook hadn't been reduced in price, they'd still be reaping the extra profits of a higher price...

...and no one is saying anything about this?  Am I just looking at this wrong?

[app103]

Hate to break it to you, but both of them could probably price their devices at about $100 without experiencing a loss. (not to say they would make any money on them if they did, but it wouldn't be a loss.)

[wraith808]

Oh, I know that.  But shifts in price aren't made that quickly (especially in a large company) without a prior plan in place.  It was the *same* day.  And without a promotional build up at all.

[ljbirns]

The object for both Amazon and B & N is to sell books - not readers.
See Gillette and the safety razor.

[40hz]

...and no one is saying anything about this?  Am I just looking at this wrong?

Um...maybe.  

I'd suspect there's a little bit of a 'sense of entitlement' from the way you're asking the question.

The basic 'rule' of optimal pricing (in a free market) is to "charge what the market will bear."

By this theory, if a device is selling at $199, it would make no economic sense to reduce the price unless there were a compelling business reason (e.g. responding to or undercutting a competitor, locking in your customer base, buying market share, etc) to do so.

Lowering a price just because you can - or because some people don't think it's "fair" - isn't a compelling business reason.

Considering how well these gadgets have been selling (despite all the issues surrounding them) I'd guess most people Looking to get one don't have a serious problem with the price of a Nook or Kindle.  

FWIW, the biggest complaints about these ebook readers revolve around the outrageously restrictive EULAs, ridiculous DRM implementation, and the high (and steadily increasing) prices for downloads. From what I've seen and heard, most people don't seem to be taking issue with the price of the reader hardware.

But there's also a few million people who think nothing of dropping $400-600 on a smartphone plus a $100/month 2-year service contract just for the priviledge of owning one...so what can we expect?
 

[steeladept]

...and no one is saying anything about this?  Am I just looking at this wrong?

Um...maybe.  

I'd suspect there's a little bit of a 'sense of entitlement' from the way you're asking the question.

The basic 'rule' of optimal pricing (in a free market) is to "charge what the market will bear."

By this theory, if a device is selling at $199, it would make no economic sense to reduce the price unless there were a compelling business reason (e.g. responding to or undercutting a competitor, locking in your customer base, buying market share, etc) to do so.

Lowering a price just because you can - or because some people don't think it's "fair" - isn't a compelling business reason.

Considering how well these gadgets have been selling (despite all the issues surrounding them) I'd guess most people Looking to get one don't have a serious problem with the price of a Nook or Kindle.  

FWIW, the biggest complaints about these ebook readers revolve around the outrageously restrictive EULAs, ridiculous DRM implementation, and the high (and steadily increasing) prices for downloads. From what I've seen and heard, most people don't seem to be taking issue with the price of the reader hardware.

But there's also a few million people who think nothing of dropping $400-600 on a smartphone plus a $100/month 2-year service contract just for the priviledge of owning one...so what can we expect?
 

+1

The way business professionals are taught to price things is to price it as high as the market will bear.  That will recover costs faster, start generating profit (the whole point from a business perspective), and provide working capital for improvements or improved positioning as deemed appropriate.  So if your product costs $50/unit to make, $30/unit to market, ship, etc. with a total cost of production of $80, what do you price it at?  $100?  $200?  Try this:  You take a survey of hypothetical features and provide a bunch of price points.  You then ask them "If this product existed, would you buy it at $300?  What if it added this one feature?  $400?"  You always price high and see how many positives you get.  Then, you ask at 3/4 that price. And again at 1/2 that price.  You also ask at what price you think it would be viewed as cheap (inferior in business speak - which holds a very specific meaning not quite the same as, though related to, the typically understood meaning).  Then once you have all these price points, you determine which one gets you the highest profit per unit and price it slightly higher than that.  After all, people lie on those surveys and are really willing to pay higher than they say - usually about a price point higher.  For those who didn't lie, they will have to wait until the price comes down as they aren't the bleeding edge market the 1st generation devices target anyway.  If that price happens to be $1,500 per unit, well I guess you are making about $1,420 profit then, aren't you?

[ljbirns]

It's all about market share.  If B & N could get 70 % of the market for e-readers and to do it they had to lose $ 20.00 on each reader they would do it in a heartbeat.

[wraith808]

It's all about market share.  If B & N could get 70 % of the market for e-readers and to do it they had to lose $ 20.00 on each reader they would do it in a heartbeat.

If that's truly the case, then why haven't they reduced the price again?  I think as long as they can make money on readers, they will keep it as high as they can, because that is *their* money, while for the books, they are beholden to another industry.  Just because they stock the physical books doesn't mean they will have the digital ones.

I'd suspect there's a little bit of a 'sense of entitlement' from the way you're asking the question.

Actually, not a sense of entitlement, as I do believe that they should be able to charge whatever they can.  But from the perspective of doing it so blatantly, and people actually joking on their side on the matter, it seems strange.

[ljbirns]

From today's WSJ  :
Borders Group Inc., the nation's second largest bookstore chain as measured by sales, has launched an e-bookstore powered by Kobo Inc., the Canadian e-book retailer in which Borders owns an investment stake.  Borders is late to the e-book business, which is the fastest growing segment of book publishing and book retailing. Major e-book retailers include Amazon.com Inc., Barnes & Noble Inc., and Apple Inc., with Google Inc. expected to enter the market later this year.
Borders said it hopes to control about 17% of the e-book market by July 2011. By contrast, Albert Greco, a book industry researcher, estimates that in 2009 Borders had a 10% share of the retail book sales market.

It's all about selling books.

[wraith808]

It's all about selling books.

Selling books is a consideration.  I don't think that anyone would deny that.  But it's not the only consideration.  If that was the case, the readers would have dropped long before now.  If that was the case, the previous attempts to enter the market wouldn't have failed/received such a lukewarm reception.

It's not all about selling books.  It's also about the medium that the books will take to the market, and the rights to get them there, more than it's ever been.

[ljbirns]

Game consoles ( X Box, Playstations  etc.) are all about selling  games
Razors are all about selling blades
Smartphones are about selling airtime

[wraith808]

That's quite the limited and short-sighted view of the different markets, IMO.  Computers are about selling software?  That's *one* focus... but considering that Google doesn't sell any software, that would sort of place that outside of the scope of your list, no?  That's just one example...

[ljbirns]

Could be  ... but it is my view based on my experience in retail.
You only buy ONE reader ( game console, razor. cell phone )  etc  you potentially buy 100's of games, blades, software, and air time.

[40hz]

Actually, not a sense of entitlement, as I do believe that they should be able to charge whatever they can.  But from the perspective of doing it so blatantly, and people actually joking on their side on the matter, it seems strange.

Agree. It is strange.

Apple has been milking something similiar for all it's worth.  

But some people enjoy being beaten up too - so I guess we shouldn't be too surprised right?

 

[JavaJones]

Virtually none of the computer component manufacturers sell software either. So where's their "razor cartridge" to keep them in business?

Could be  ... but it is my view based on my experience in retail.
You only buy ONE reader ( game console, razor. cell phone )  etc  you potentially buy 100's of games, blades, software, and air time.

Isn't this potentially the same as saying the point of selling cars is to sell oil changes, tires, air fresheners, etc? The sales model you're talking about (razors) is pretty specific and very real in the industries that use it, but just because other markets have similar potential aspects doesn't make them the same. In the case of the razors (and printers), the same company sells both the item and its consumables. Also the item itself is generally sold very cheaply, possibly even at a loss, and the consumables are priced relatively high to recoup. Generally the item isn't even useful over the long-term without regular renewal of consumables, and that's just not true of computers (unless you consider electricity)

I think the key though is that the same company is selling both the thing itself and its accessories (and also that the majority of profit does not come from the main device). This is arguably true for Apple of the iPod for example, since they sell iPods and tons of accessories but *also* tons of music. But it does not seem correct for the computer market in general. That is more of an "ecosystem" than a "razors and blades" scenario IMHO.

- Oshyan

[wraith808]

And I think the only buy one only works if your razors will only use your blades.  In the book market, you are quickly finding that there is significant resistance to this paradigm, just as it was in music.  If the information isn't free, people at least want it to be semi-open.  And if not semi-open, then able to use open standards.  I frequent a nook site, and one of the big driving factors that is causing people (including me) to look at the iPad, even if it is the inferior reading device is the fact that it resists lock in.  iBooks doesn't, for sure, but there is Stanza (a completely open reader), Kindle for iPad, BN eReader for iPad, and now the Borders eReader for iPad.  So no matter what the publisher war results in, you're still able to read whatever book you want.  Not an ideal situation, but it's better than not being able to read a book because the device you're using couldn't get a license.  A recent example of this is the book Changes by Jim Butcher (in the Dresden Files series- highly recommended).  The only outlet for purchasing the digital copy was Barnes and Noble.  So a friend with a Kindle had to get the dead tree edition.  I personally use my iPhone currently to read, so I was able to download it for the B&N eReader and read it.

TL;DR version- DRM sucks.  But if you have to have it, I'm not going to let my purchasing of hardware and your sucky DRM keep me from getting a book I want to read.

[ljbirns]

Isn't this potentially the same as saying the point of selling cars is to sell oil changes, tires, air fresheners, etc?

Well,  think about it.  Every time you go to buy a new car the second thing the salesman says to you is " Our service department is world class. "  Then he ( she ) takes you to meet the service manager. Why ?  Cause that is where the money is .  HP  sells printers for low prices ( and has low margins ) so they can sell INK at high margins.  HP  gives away the printers to sell high margin ink.

And if not semi-open, then able to use open standards.

I agree that there will have to be one standard for all readers (  See Blu-Ray vs HD-DVD ) before e-books become really mainstream.  Also, at present you are really just " renting " the book.  You can't loan it, sell it or donate it. That will need to be addressed also.

[wraith808]

And if not semi-open, then able to use open standards.

I agree that there will have to be one standard for all readers (  See Blu-Ray vs HD-DVD ) before e-books become really mainstream.  Also, at present you are really just " renting " the book.  You can't loan it, sell it or donate it. That will need to be addressed also.

I wouldn't go that far.  It would be *nice* but that doesn't necessarily mean it won't take off without it.  Again, look at music.  It took a *long* time for DRM free music to become a major sight in the industry, but digital music was mainstream long before that.  I would arguably say that electronic books are already mainstream, and the money involved backs that up.  In many ways, like so many other things, electronic books are a victim of their own success.  The market was stabilizing in terms of format, but now that there's so much money involved, that stability has been thrown away as retailers jockey for position in the market.

[ljbirns]

electronic books are a victim of their own success.

A ways to go on that..

Just some very rough figures  Total  Sales of e-books  first 4 months of 2010                                        $117 Million
                                              Barnes & Noble Sales  Qtr ending  May 2  ,2010                                    $ 1.3  Billion of which B & N .com  was $ 191,000,000

Add in Amazon and all the other sellers of books ( Costco, WalMart, Borders  2500 independents. ) 

                                             
                   
         

[wraith808]

I think those numbers, combined with the trends show exactly what I was referring to.  The eBook market has crested 100 million, and is the fastest growing sector of book distribution.  At this point, they are becoming mainstream, and the mainstream retailers can't ignore them anymore.

[ljbirns]

Barnes & Noble, Amazon and Borders  are mainstream retailers -  and they are the leaders in the e-book revolution

[wraith808]

That is my point.  It is becoming mainstream as mainstream retailers get into the game.  The numbers were too big for them to ignore.  Or did you mean something by stating who the mainstream retailers are?  e-books have been around for a loooong time without them as players.  Amazon decided to get into it with the Kindle.  B&N bought Fictionwise/eReader and leveraged them with the nook.  Borders is coming along late to the game, and it still has yet to be seen what their presence will do to the balance.  They weren't the leaders, they just elbowed their way into the game when they saw that the market was ripe for their picking.

[ljbirns]

Amazon Says E-Books Now Top Hardcover Sales

http://www.nytimes.com/2010/07/20/technology/20kindle.html?_r=1&hp

I am SHOCKED !!!!!!

[wraith808]

I'm not   And that was my point above

[ljbirns]

And your point is right on