Expert publishing blog opinions are solely those of the blogger and not necessarily endorsed by DBW.
When you hear the term “loss leader” you think of grocery stores and discount warehouse chains. You don’t think about technology or publishing. Until now. Amazon recently announced price cuts on its Kindle Fire Tablets. The lowest priced model was slashed 10% to $159.
Amazon states production efficiencies are the reason for the price cut. “We’ve been able to increase our production volumes and decrease our costs,” said Amazon Kindle vice president Dave Limp. But is this all about “passing the savings on to customers” or are they using a discounted price to breathe a bit of life into a product that hasn’t been fully embraced by consumers?
Why would someone buy a Kindle Fire when they could purchase a more full-featured tablet from Apple, Samsung, or Microsoft? No one who’s considering a table purchase would also buy a Kindle Fire just to read books. If you buy an iPad, you can download the Kindle software for free and the iPad turns into a Kindle for free. It doesn’t work the other way around, a Kindle could never run iPad apps, Apple’s proprietary software (and corporate strategy) won’t allow it.
Consumers who think about their hardware purchases this way (do I want an e-reader, a tablet, or both?) are probably more likely to spring for a tablet with an Android, MacOS, or Windows OS if they can possibly afford it.
Those who are looking for a device to do nothing other than read books are probably going to choose a lower-priced e-reader, not the colorful, multi-featured Fire.
So, the way I see it, that puts the Kindle Fire in a very narrow niche—within a very competitive market. Squeezed this way, from above and below, the Kindle Fire seems to have a very small potential audience. Does this recent reduction in price of the Kindle fire have something to do with its position in light of the competition?
Amazon is surely aware of the Kindle Fire’s awkward place in the lineup of today’s tablets. But perhaps the company is totally okay with the fact that little more than a year after its debut, the Kindle Fire has become a loss leader. Loss leaders play an important role in helping retailers make money.
Perhaps the real value is not in the Kindle Fire hardware, but in the e-reader’s role as a vehicle for getting customers to shell out dollars for other things—ebooks, movies, games. Amazon is probably counting on making money on the content, not the hardware.
Surely Amazon has compiled statistics on the average amount of sales generated by the average ownership of a Kindle Fire—how high is this figure? Are there “frequent readers” whose consumption of content is so high it makes sense for Amazon to give them an e-reader for free … the way frequent gamblers get free rooms and drinks at casinos?
At some point, the value of potential content purchases will exceed the amount it costs for Amazon to produce their e-readers. At that point, will the company to give away their e-readers free? If owning an e-reader leads to enough digital content purchases, in this environment of competition from more full-featured tablets from Apple, Microsoft, and Samsung, Amazon may find that giving away their Kindles for free is a smart business move.
Photo of books via Shutterstock.