Wednesday, June 30, 2010

e-Reader Price War

Since I was offline last week without my modem, I missed talking about the e-reader price war. Thought I'd get caught up today.

Last Monday, without warning, Barnes & Noble lowered the price of its Nook reader from $259 to $199 and announced their Wi-Fi only version would sell for $149. A few hours later, Amazon cut the price of the Kindle to $189.

The Motley Fool pointed out something interesting:
The price war must have taken Amazon by surprise. I had to chuckle at Target's circular over the weekend, pitching $259 Kindle readers six days after Amazon's knee-jerk reaction. Clearly, the price cut wasn't orchestrated or rehearsed -- it was pure desperation.
If you'll recall, when the Kindle was originally released on November 19, 2007, its price was $399. Then on February 10, 2009, Amazon released the Kindle 2 with improved features, priced at $359. Five months later on July 8, Amazon reduced the price of the Kindle 2 to $299. Three months after that on October 7, the price dropped to $259. This latest price drop to $189 represents a 47% drop from the original $399 retail price tag.

Last month, I said that, on the surface, Amazon's strategy of selling e-books at a loss made no sense. But that strategy benefited sales of the Kindle. Serious readers were willing to fork over $259 for an e-reading device when they knew they could buy books for it at $9.99 each. Buy enough books and the Kindle paid for itself. That strategy also made Amazon the largest e-book retailer in the United States.

Now Amazon has been forced to agree to the agency model for e-book pricing. And B&N lowered the price of the Nook. Things are probably a little tense around Amazon these days.

Interestingly enough, yesterday Forbes published an interview with Jeff Bezos. The interview took place last Tuesday, the day after the price war started.

Bezos brushed off iPad comparisons to the Kindle by saying, "It's really a different product category. The Kindle is for readers."

The most interesting part of the interview took place when Forbes asked about e-book pricing and whether the agency model would hurt Amazon. Bezos replied:
No. First of all, there are a bunch of publishers of all sizes, and they don't all have one opinion. There are as many opinions about what the right thing to do is as there are publishers. So you're seeing that some of them are being very aggressive on prices, pricing their books well below $9.99.

Others are trying to do everything they can to make prices as high as possible. And what you're going to see is a share shift from one group of publishers to this other group of publishers ... It's a significant shift and we're seeing it already.
Interesting days ahead ...

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