Rob: what you describe is predatory pricing, surely?

George: yes, I'm certainly talking about predatory pricing. But the definition of predatory pricing is that it forces others out of the market. I'm not sure whether Amazon's prices will do that, but I'm worried that they might.

For sure amazon sell some of our products at below cost - mainly our ebooks and occasionally our paperbacks. And this has to be an attempt to gain market share for there is no other reason to do so, and it has to be to force the competition out of the market - there is no other reason to do so. It is clearly predatory pricing. They can afford to do it because they make most of their money from their associates. The amazing thing is that these very associates are seen by the competition commission as competition to amazon, so no one is ever going to actually prove amazon do predatory pricing.

My husband could tell you more about this than I could - and I'm just going to hope I'm properly repeating what he's explained to me - but in the video game industry, this is standard operating procedure for selling consoles. Initially, it costs Sony a great deal more money to make a PlayStation 3 than they sell it for. As the manufacture of the product becomes more streamlined, the costs go down, but I understand that they don't make any profit - and in fact lose money - off a new console for something like a year or two after the launch. Their reasoning is twofold: 1) they get a chunk of all the games sales related to the consoles, which is far more profitable than the consoles, and 2) the console is out for three or four years before the next generation and they have the chance to make their money back eventually. The PS2 was tremendously profitable following this model. But not for a good long while after launch.

I don't know much about Amazon's profit structure, but it seems to me that selling ebooks is always likely to be more profitable than selling the devices upon which they're read. (Ebooks are data; devices require manufacture; even if the ebook profits are split into more pieces, it seems like a no-brainer.) I think the idea is to get Kindles into hands at all costs, and then, even if the customer never upgrades, you'll be selling them ebooks at what strikes me as an enormous profit for a long, long time.

I agree it is all about market share, and I think this move indicates just how pivotal tablets and mobile are going to be in determining which businesses dominate the eContent distribution industry and distribution industries going forward.

Whilst thinking about this point I came up with following - all the publishers I have worked for are quaking at the knees (and have been for over a decade now) at the decline in print revenues and those who have had e-revenues have been reluctant to see them as one in the same (content revenues), but want to have both revenue streams running in parallel, why...because the business models for print are proven and profitable - the flexibility and complete lack of a single accepted business model associated with selling ebooks means that most publishers still feel the business model is not proven and that combined with the weird need that most publishers have to develop their own expensive platforms (did any publishers have their own bookshops?) has meant the costs publishers have inflicted on themselves are really high thus adding to their continued scepticism regarding digitizing back lists, releasing front list in eformats. They are leaving a very safe place (and business model) and entering into a market where there is going to be some significant jostling for positions and the landscape will look very different over time.

So what am I getting at, well it is I think Amazon is in the same metaphorical boat. Proven print distribution business and a monopoly has been, thank you very much, very nice - but the rise of ebooks, the landslide of tablets into the market and decline of physical copy sales has put one of Amazons core business' at risk - I would love to see their mid to long term revenue projections for the print business. They can not afford to see Apple use their iTunes model to become central in the ebook distribution industry, that coupled with some really excellent social networking book distribution sites leaves the eBook distribution market wide open at the moment. I would suggest in these early days of tablet adoption eBook purchasing will be a core user function - if there is another business that dominates the ebook sales to tablets and they have good applications and purchasing functionality they would very quickly be attractive (as amazon was) to people wanting to sell, well, just about anything. Why are Amazon selling at a loss....I think because they are very very nervous.

Fascinating analysis, Caroline. Thanks for that. I'm going to have a ponder about the points you raise.

Katharine, I believe you're right: one sells consoles cheaply and makes one's money on the games. To some extent the same is true any time there is a new device for consuming some sort of proprietary media. I think the slightly unusual thing here is that Amazon are also open to the idea of selling the content at or below cost. Presumably they want to make the Kindle platform totally dominant - because, unlike with games, they don't plan to release a new, non-backward-compatible platform in a year or two; they plan to lock in the reading public for good and use that as leverage for other content (videos, apps, music) and for shopping.