Friday, October 7, 2011

Amazon's Special Offer : the dual-bladed razor

Late, but only by a few weeks, here is one analysis of the new Kindle line-up

The Amazon announcements at the end of last September  came like a bombshell : With the lesser model priced at $79, the Touch at $99 and Kindle Fire going for $199... All in all it was dynamite against the competitors.
I'll leave alone the Kindle Fire for now, for the current post, I'd like ton concentrate on the eInk readers (regardless of 3G) :  Kindle and Kindle Touch.

A few minutes after the announcements, an observation arrived, explaining how Amazon managed to sell its hardware for so low prices : The prices all include by default the "Special Offer" discount.
This "Special Offers" is what I call the "double bladed" razor. Why 2 blades ?

The first blade
What I call the first blade is the announcement and first launch of that "Special offer" a few moths ago.
It was then, actually, a discount on the base price, where the user accepted, in exchange for the reduced price, to receive targeted offers and discounts, displayed on non intruding locations.
Of course, many were disturbed by the offer, but still, it allowed new consumers to enter into the then still exclusive ebook readers club
It also allowed Amazon to keep it's Kindle competitive with regard to the other ereaders, while they were preparing the next generation Kindle line-up.

And now, last moth came ...

The Second Blade
Jeff Bezos managed to make a great new Magician's trick with this one : transform a "discount product" into a prestige but cheap one. If he had tried and sell us directly ,like that, his $79 Kindle, without having prepared the customers with these "Special Offers", everyone would have called him names for "cheating" on this price. He would have been shouted at by angry mobs, almost lynched...

But no, not only are these "Special Offers" not that bad (non invasive), but for some it's almost a feature, due to the discount coupons, which are regularly sent by Amazon (even sometimes on "Wish List" Items, if I get it correctly) ! On some US forums, I see customers having "reimbursed" their Kindle through the Offers, and some regretting not having bought the SO version instead of their standard one.

And for those who want to get rid of the SO, Amazon just started this new service : Pay to remove the SO:

Well, for customers, that's not that bad, don't you think ? But for competitors, winter will prove a hard season to pass...

From a technical point of view, this new e-ink Kindle line-up doesn't prove really extraordinary, except maybe for the X-Ray, but I'll maybe talk to it later, when we know more about it.  All in all, if you check in detail, and "ignore" the Special Offer prices, except for the Amazon store link, and the proprietary file format, these readers are on par hardware-wise  with what the others do, and outside of the US, I'm not sure how well they'll do. 

Shit, it cuts !
But the "tour de force" is that in the US, Amazon can now use this "Special Offer" as a scalpel to practice a "cachectomy" (chirurgical ablation of the cash) by forcing the other competitors to concede lower pricing if they don't want to loose market shares. And of course, while this sponsors subsidized offer doesn't cost much  to Amazon, it allows it to lower its prices 30 to 40 % under equivalent equivalent reader's prices.

And lastly, 30 to 40%, when near symbolical prices such as the 100$ barrier one, it allows one to go way under it, with the $79 Kindle as proof, and the $99 Kindle Touch just under the $100. If they want to compete, the others will need to empty their cash stashes...

Please note that this trick only works in the US for now, but as you know, on the Gillette razors, there may be way more than 2 blades, and I'm ready to bet that Amazon has already prepared blades #3, 4, and 5, ready to ship when necessary.
Some ideas of what they could be :
- Do the same thing, but international, using the US example as a lead to find "Special Offer" foreign partners.
- Prove the X-Ray feature's interest, and show how it's un-adaptable to epub (through software patents ?), using it's dominant position and proprietary format to still enhance it's market share....

But in the meantime, here, in France, we're welcoming Amazon as the "savior", who may finally come and start the ebook market, blocked as it is by the French Publishers.

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