Amazon.com is where I go to get free stuff (& why the AmTab won’t be a loss leader)
I was in a debate earlier today on Twitter on the state of the tablet market, and of course the conversation eventually rolled around to the Amazon Tablet. And like most debates on the AmTab, someone brought up the loss leader idea.
A lot of people are thinking that Amazon will sell the AmTab under cost as a way to create a platform for selling digital goods. They’ll make up their initial loss through sales of content. I disagreed with my friend, but the reason I disagree would take too much space to be explained fully on Twitter.
I do not see how Amazon could sell the AmTab as a loss leader, and that’s because I have a different view of Amazon current business model (with respect to digital content). Amazon.com is where I go to get free content, and I think Amazon did that on purpose.
Update: Let me be more specific. Digital content is itself the loss leader. It can’t be used to make up for a second loss leader.
Are you familiar with eReaderIQ, the free Kindle ebook site? They have a RSS feed, daily email, and a website dedicated to showing you all the latest free ebooks for the Kindle. They find around 130 new free ebooks each week.
Yes, I did write 130 free ebooks a week. That’s more than any one person could ever read in a week, too.
I tried to set up a site similar to eReaderIQ that would work with Kobo or B&N. My first step was to look on InkMesh, the ebook search engine, to see how many new ebooks each ebookstore posted each week. I discovered that Kobo never got more than a handful of free titles in a week and B&N only a few dozen, which pretty much shot that idea out of the water.
Update: The current search results for Inkmesh disprove my argument. Right now B&N actually have more free ebooks this week than Amazon. The number was lower when I looked into it before, and the change is interesting.
Think about that for a second.
Only 1 of the 3 largest ebookstores in the US have vast quantities of free ebooks. Surely that’s not an accident. The only way that I can see such a difference occurring is if someone worked to create the situation deliberately. I truly believe that Amazon have more free ebooks because that is part of their business plan.
If that’s not enough, then take a look at the mp3 store. I’ve bought just the 1 album from Amazon, but I have also downloaded hundreds of hours of free MP3s. There are nearly as many free mp3s on Amazon as there are ebooks. Do you really think that’s a coincidence?
I confess that I don’t know enough about other mp3 retailers to make a definitive statement, but when I stack the free mp3s next to the free ebooks it looks suspiciously like Amazon did it on purpose.
And then there’s the free daily Android app. Amazon are giving away a free app everyday, with total downloads often hitting 100k. Doesn’t this look like Amazon is giving digital content to
it’s creating a mindset among Android users to encourage them to come to Amazon and get free stuff? And folks, that daily free app is most definitely not an accident.
I don’t know if Amazon have a tablet at all, but I am quite certain that they will not sell it as a loss leader. The idea just does not fit with the external appearance of their current business plan. The digital content itself is the loss leader, IMO.
tene August 19, 2011 um 3:39 pm
Well, it seems obvious. People like to have habits, to have some rock-solid 'things' in their life they can stick to. Once I get used to using Amazon site for getting free stuff, what will be the first place I go searching for anything else? Sure – I ten to think of myself as a conscious consumer and regularly compare prices before purchasing, but then – will those 50 cents be enough for me to spend time setting up new account on another store and learning about their DRM scheme or delivery fees? Very often – it won’t. I’ll buy from where I know what to expect. And that’s it. Oh, maybe one more thing. Getting free stuff quite often and getting good service when I do decide to pay for something (I’ve bought from Amazon in US and in UK and really have no reason to complain) makes me a happy customer. I’m not sure about others, but I consciously choose to leave my money where I feel like I’m (and my money is) welcomed. Of course – it’s not like you can win a loyal customer once and for all. You have to win customer’s loyalty every time. And it seems like Amazon knows that trick. Sadly, in my country it still seems to be more of an occult science for many shops, restaurants, banks etc.
Sherri August 19, 2011 um 4:24 pm
Not quite the same, but there’s also the free streaming video for Prime members. Especially relevant now that Netflix started charging for streaming for its DVD subscribers. I’ve had a Prime membership since way before streaming video, and I definitely choose Amazon to buy things over other sites, because of the shipping. I don’t have to worry with combining purchases to save on shipping, I just order and it’s there two days later.
willem August 19, 2011 um 5:48 pm
There seems to be this idea floating around that there is a lot of money to be made in selling digital content. Cannot see it myself to be honest.
Using it as a hook to sell something else, yes – see Apple. So the only arrow in Amazon’s quiver could be a more radical extension of the idea behind the Kindle Special Offers. (Also notice that media as a proportion of Amazon’s total business is shrinking percentage wise, not growing).
Another myth that will not die is the idea of ebook sales subsidising the Kindle hardware…
fjtorres August 19, 2011 um 5:50 pm
On the ebook side at least, Amazon has plenty of "free" cash to play with thanks to the "Agency pricing" scheme from the price fix six. They can’t discount those books, but they can discount everything else and still maintain satisfactory profit margins. In addition, they also have the savings that come from not paying the Adobe tax.
The second aspect of Amazon’s free content strategy is that while they have plenty of free content at any given moment, it isn’t always the same content. In other words, free content is used for marketting and building up the authors' brands. As some self-published authors have proven, using temporary price cuts to boost "sales" boosts visibility and results in higher sales over an extended period than if the price had remained flat.
It bears repeating: Amazon’s core competence is *selling*; their expertise is not books, not media, not hardware. But selling.
Product pricing is more art than science and Amazon is a top tier practitioner of this art, which is something none of their competitors can credibly claim.
Peter August 23, 2011 um 2:20 pm
Amazon’s business model is to sell anything they can at whatever price they need to in order to get the sale.
This increases their sales and cash flow, which increases the stock price, which allows Jeff Bezos to sell his own shares for billions of dollars.
What? You thought they were some sort of actual, sustainable, business?
Old Rumors Circulate on the Amazon Tablet – The Digital Reader August 27, 2011 um 3:15 pm
[…] Also, if you know anything about hardware then you probably know that an iPad competitor can’t sell for “hundreds less than the entry-point $499 iPad” because the parts cost too much. For example, the HP TouchPad cost $318 in parts. What, you think the AmTab will be a loss leader, with the loss to be made up in digital content sales? That’s not Amazon’s business model. The digital content is itself the loss leader. […]
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