It’s interesting to review the different rationale journalists, analysts and bloggers are supplying for the sub $300 Kindle.
$300 Kindle Rationale 1: Economies of Scale
Proponent: Amazon.
Agree: Think Equity Analyst Edward Weller, Me (my second favorite rationale).
Details: Amazon just straight out said they’re producing more kindles and benefiting from economies of scale (Andrew Herdener) -
passing on savings to consumers from the increasing volume of Kindle sales and the decreasing costs to manufacture the digital reading device.
Review: One of the top two explanations.
$300 Kindle 2 Rationale 2: Prime View’s Acquisition of E-Ink
Proponent: Goldman Sachs analyst James Mitchell.
Details: Mr. Mitchell writes -
we assume that this cut similarly flows from supplier scale in manufacturing key components, such as the E Ink screen; Amazon’s Kindle assembler, Prime View International, acquired the manufacturer of Kindle electrophoretic screens, E Ink Corporation, for $215 million in June 2009, which may have aligned Amazon’s and Prime View’s interests in favor of price cuts to drive volume.
Bonus Snippet: We estimate Amazon has sold around 1.5 million Kindles to date.
Review: Doesn’t make much sense as manufacturing and materials cost $185 and cutting that to $120 in 5 months seems near impossible.
$300 Kindle Rationale 3 – Ward off competitors
Proponent: Alexandria Sage at Reuters, lots of others.
Details: Calls it the latest salvo in the war for digital readers -
The price cut comes amid a budding digital book battle where rivals like Amazon, Sony Corp and a host
of smaller companies are anxious to get in on the ground floor of what some say is the future of reading.
Review: Somewhat plausible. The thing is that the Kindle was the clear-cut choice even before the price-cut.
$300 Kindle Rationale 4 – Kindle DX cannibalizing Kindle 2 sales, Declining Kindle 2 Sales.
Proponent: Me, a few others.
Details: There are two main factors at play here -
- Its confusing choosing between Kindle 2 and Kindle DX. If you put aside sticker shock and consider it from the perspective of someone who has a $489 gift card - its a really hard choice to make.
- The recession means the difference between $299 and $359 seems like $100 or more.
At the new price point the Kindle 2 just becomes a clear, clear choice.
Review: My favorite explanation. One of the top two along with economies of scale.
$300 Kindle Rationale 5 – Amazon is getting support from Book Publishers
Proponent: Jeff Lindsey of Sanford Bernstein (courtesy MarketWatch).
Details: Thinks Amazon is getting more support from publishers. He writes -
“We think that previously, Amazon was heavily subsidizing the price of books and making up for it with a higher price on the hardware,” Lindsay said. “This indicates that publishers are beginning to transition to an electronic publishing model, which is lower revenue but higher margins.”
Review: We wish.
$300 Kindle – My Thoughts
Lets look at this progression for why so many people have so many different theories about the kindle price cut -
- iSuppli made the grand mistake of listing the ‘direct material cost of the Kindle 2′ at $176.83, and manufacturing and materials cost at $185.49.
- They do note that this excludes -
the cost of intellectual property, royalties and licensing fees, software, software loading and test, shipping, logistics, marketing and other channel costs
- Every single journalist (perhaps they don’t read the full article) uses the $185.49 price as what it costs Amazon to get a Kindle 2 to a customer.
- They therefore wrongly assume that Amazon had a $170 buffer to play around with and that the $60 price-cut leaves Amazon with a $110 cushion.
Every Kindle 2 is invaluable to Amazon once it reaches a customers’ hands. There is no way they would be leaving a $110 cushion.
The real reason for the $300 kindle? My money is on a mix of the Kindle DX cannibalization effect and economies of scale.
What do you think is the motivation behind the sub $300 kindle?
Filed under: review, thoughts Tagged: | $300 kindle
