Amazon: New $189 Price Results in Tipping Point for Growth

[Maggie Leung]

Originally Posted by fjtorres

Very likely. Probably in the low teens instead of 100%.
On the other hand, their ebook profits are significantly higher than back when the K2 was introduced. And growing.

I also wonder how much business Amazon has gained indirectly because of Kindle. I used to rarely shop there. Since I started buying Kindle books, I've bought many non-Kindle items there as well. There probably are other such customers.

[Nathanael]

Originally Posted by fjtorres

Uh, no. That is factually incorrect.
Both Amazon and Microsoft sell the hardware at market prices. Neither is a loss leader.

In my defense, I'll point out the "undoubtedly" in my statement. I was speculating, based on the fact that loss-leading on hardware is a common industry practice, particularly for companies trying to break into a new market. I freely admit I don't know details on the Kindle, and will gladly be corrected on it. But I'm not sure I've (yet) seen anything to contradict my speculation.

As for XBOX, it is equally well-documented that the console reached breakeven back in 2006 and has been producing hardware profits ever since.

Your first article makes clear it is comparing component costs against MSRP. There are two problems with that: 1) component costs and, 2) MSRP. As someone has already pointed out, component costs are not total costs[Footnote 1]. And comparisons against MSRP are utterly irrelevant. I haven't bothered to look up exactly how much MS charged distributors for 360s, but I'm absolutely certain it wasn't anything close to $399.

However, in first-quarter 2006 MS was losing $126 per XBox sold -- and that was when compared to MSRP. When compared against wholesale, actual per-unit losses were undoubtedly higher.

Further, in FY2006 the Entertainment and Digital Devices division had a net loss of $1.26 billion. That seems to contradict your statement above. Further, the EDD president was quoted at the time as saying he expected losses to continue through FY2007.

Now, to be fair, as it turned out the EDD actually managed to turn a profit by the 2nd half of FY2007, and I know it did so also in FY2008. I haven't seen the 2009 numbers. However, the article doesn't break out hardware numbers specifically, so that doesn't contradict my initial assertion.

Your second article errs in referring to "production costs".

Finally, it is hardly a secret that the new 360s with the single -chip architecture at $299 has a profit margin of over US$100.

Source?

You're apparently new 'round these parts it seems

But not wet behind the ears.

will get challenged every time.

Looking forward to it.

Toodle-loo.

--Nathanael

[Footnote 1] Advertising costs alone are huge. I don't know how much MS has spent on advertising the XBox, but I do know that corporate-wide, advertising eats up 21% of Microsoft's annual budget, and that in 2006, the EDD had an advertising budget of nearly a billion dollars. I don't know how much of that was spent specifically on the XBox, but considering 2006 was the year MS launched the 360, I bet it was a lot.

[Nathanael]

Originally Posted by murraypaul

From what I've read of the latest report, they aren't claiming that Kindle sales have tripled, but that the rate of increase of Kindle sales has tripled. So if they were seeing 5% month-on-month growth, they are now seeing 15%. (Made up figures)

Thank you. I stand corrected. I carelessly parroted an article I'd just finished that trumpeted "Kindle Sales Triple!", apparently considering that "growth rate" bit superfluous. Never trust the blogosphere.

--Nathanael

[kjk]

Originally Posted by fjtorres

As for XBOX, it is equally well-documented that the console reached breakeven back in 2006 and has been producing hardware profits ever since.
http://www.gamasutra.com/php-bin/new...hp?story=11833
They have been generating significant profit since at least 2007:
http://www.next-gen.biz/news/isuppli...ntinue-decline
Finally, it is hardly a secret that the new 360s with the single -chip architecture at $299 has a profit margin of over US$100.

A bit off topic, but your second point is incorrect, and your second and third points are based solely on iSuppli, which is not really a reliable source (I'd consider the only reliable source to be Microsoft for what their profit margins are).

If Microsoft has been producing "hardware profits since 2007", then why, in their earnings call for F4Q08 http://seekingalpha.com/article/8561...ript?find=xbox , did Colleen Healy mention:

First, cost of revenue; we sold more Xbox 360 consoles than our guidance had reflected.

In other words, they sold more hardware, so their costs increased.
COO Liddell explained:

For example, on the revenue side, we sold more Xboxes, so we had more COGS. That’s good news, okay? We don’t make any money from those but overall in terms of long-term health of the business, the more consoles we sell, the better.

(emphasis added)

As far as the new Xbox360 Slim-we won't know til earnings come out-and probably not much color on the issue this quarter, since it is pretty new.

[Greg Anos]

there was a thread a year or so ago about e-books tripling as a percent of book sales(from 1.2 to 3.6 or so). Various people said that it was a one-time only spurt and would end soon. It doesn't seem to be ending...

[Nathanael]

Originally Posted by Ralph Sir Edward

there was a thread a year or so ago about e-books tripling as a percent of book sales(from 1.2 to 3.6 or so). Various people said that it was a one-time only spurt and would end soon. It doesn't seem to be ending...

That's good news. It's going to be interesting to watch the interplay between Apple and Amazon over the next year, and to see where prices finally shake out. Even Amazon can't afford to take losses on ebooks forever. Who'll blink first, I wonder?

--Nathanael

[SensualPoet]

Originally Posted by Maggie Leung

I also wonder how much business Amazon has gained indirectly because of Kindle. I used to rarely shop there. Since I started buying Kindle books, I've bought many non-Kindle items there as well. There probably are other such customers.

Now, here is an interesting concept.

I spent $0 at Barnes and Noble, living in Canada, before 2010. That's because, Barnes and Noble cannot be arsed to sell anything in Canada -- Nooks, books, ebooks. Windsor may be south of Detroit ... but Canada might as well be in Russia.

And yet ... since buying a Kindle 2i in Nov 2009, I have spent money at the "is it dead yet?!?" subsidiary of Barnes and Noble, Fictionwise.

I admit to having bought a couple of (physical) books from amazon.com and amazon.ca (that's Canada, not California) each year in recent memory. The customer service, the catalog, the order system is flawless ... nothing like it in Canada. And, one day after Amazon deigned to do business with its Kindle in Canada, I was at the head of the line. At first, I used the Kindle with public domain titles, then a couple of free titles, and now, well, what can I say? Amazon Kindle books are just better formatted than the competition, competitively priced (not necessarily lowest), and, wow, easy to deal with. My Kindle 2i has been upgraded for far more capability than it had when I thought it was worth $259. And I am buying from Amazon regularly.

Is anyone listening?

Amazon's Kindle is a great device: I want to feed it. Non-Amazon vendors have my ear ... but Kindle books are often as good or better and the same price or cheaper than alternatives. If I am lucky, I can read 60 books a year. So, don't get in the way: make it EASY for me to buy from you.

Even if I am willing to go through hoops to change formats: Barnes and Noble refuses to sell to Canada. Sony e-Reader store offers me hundreds of thousands of titles which, in my check out cart, are removed: sorry, second class folks, go somewhere else. My secondary reader, a Kobo, sits idle. (Although, the Canadian Kobo book store is credible and I am buying things there.)

With 60+ titles annually on my list of books I am willing to PAY for, what are my choices? Like, duhhh!, of course I am going to return to Amazon. And as no other vendor is interested in making it easy for me to be a customer ... where else will I go?

An aside: some folks are getting their shirts in a knot about 2 year exclusive Amazon deals for a few handfuls of backlist titles. A reminder. Most of us are hard pressed to read a book a week -- that's scarcely more than 3000 books over 60 adult reading years ... if novel X is temporarily locked out ... there are millions of other worthy titles worth reading.

[AnemicOak]

Originally Posted by Nathanael

Even Amazon can't afford to take losses on ebooks forever.

With Agency pricing now in place they're taking a loss on very few ebooks anymore. It's mainly just bestseller "hardcover" titles from Random House that they're heavily discounting, they never heavily discounted most "paperback" titles.