Thursday, September 2, 2010

Pricing for the New Kindle

So this week, Amazon launched the improved Kindle. It looks pretty cool. I bought myself and my wife an earlier version Kindle about 2 months ago and we both love the product. It is easy to hold, easy to read and download. It does live up to the billing. I considered an IPad, but must admit the Apple pricing really deterred me.

My surprise is how Amazon is pricing the product. 2 months ago, the Kindle price was lowered from about $250 for 3G version to $189.  The WiFi is $139 (Interestingly, I bought my wife’s Kindle at higher price and mine at lower price 2 weeks apart). The product was very hot but Amazon was lowering the price.

The new Kindle coming out now offers better graphics, lighter weight, and more storage. Obvious upgrades in functionality, but not improvements that would make it essentially different enough for a new price tier. On the website it says they are sold out for several weeks. I think everyone will want one of these. They are running to own this market, it seems.

I have to admit, that I still think the ebook platform is in early adoption stages for the mass audience and it seems too early for a price war or significantly lowering prices. It almost cheapens the whole idea, to me anyway.  Obviously Kindle could have maintained their earlier higher price point, rather than lowering price and then upgrading functionality.

Let’s assume the following for the pricing strategy for new Kindle
1. Expand the reach of the ebook platform – bring it into as many households as possible
2. Market dominance – beat out IPAd and Nook / Sony
3. Sacrifice margin from equipment to generate profits from online book sales

Apple and Kindle/Nook are essentially different pricing strategies. Apple owns a platform and therefore does not “talk” about price as a tool to gain sales, but instead upgrades features to hold onto higher prices. Kindle / Nook / Sony are essentially similar products that are each looking to win a share battle while introducing / expanding a category. Kindle has an improved product, with an aggressive pricing strategy that somewhat cheapens the platform, but will likely accomplish the goals of dominating the market.

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