Amazon below cost? Part two. • 11 November 2011 • The SnowBlog
Amazon below cost? Part two.
I was pontificating recently on the fact that Amazon are happy to sell at or below cost as a strategic investment. The phrase 'strategic investment' in that last sentence you will recognise as business speak for 'attempting to buy market share'. And now here's an article suggesting that the latest Kindle reader might cost more than they're being sold for. (And incidentally, could Amazon start giving their e-readers model names again, please. 'The one they've been selling since last year' and 'the one they're just about to ship' are not good names.)
As for selling below cost, I certainly have mixed feelings about that strategy. As I said before, the problem comes not so much from a corporation choosing to give things away, but from what it might want in return. I'm concerned that the idea behind 'dumping' product at below cost is to make the market temporarily unprofitable for everyone else in order to drive out the competition - after which Amazon could bump the prices back up, conceivably even higher than they started out. Not only is a move like that about reducing competition in the long run, it's a strategy only open to those with deep pockets. And that in itself is an important point: I can't say for sure that Amazon are intending to extract 'monopoly profits' from the book/e-book market once they're in a strongly dominant position, all I can do is look at what all this selling-at-a-loss must be costing them and worry about how they intend to make it all back (and more besides, presumably).
Rob
I was pontificating recently on the fact that Amazon are happy to sell at or below cost as a strategic investment. The phrase 'strategic investment' in that last sentence you will recognise as business speak for 'attempting to buy market share'. And now here's an article suggesting that the latest Kindle reader might cost more than they're being sold for. (And incidentally, could Amazon start giving their e-readers model names again, please. 'The one they've been selling since last year' and 'the one they're just about to ship' are not good names.)
As for selling below cost, I certainly have mixed feelings about that strategy. As I said before, the problem comes not so much from a corporation choosing to give things away, but from what it might want in return. I'm concerned that the idea behind 'dumping' product at below cost is to make the market temporarily unprofitable for everyone else in order to drive out the competition - after which Amazon could bump the prices back up, conceivably even higher than they started out. Not only is a move like that about reducing competition in the long run, it's a strategy only open to those with deep pockets. And that in itself is an important point: I can't say for sure that Amazon are intending to extract 'monopoly profits' from the book/e-book market once they're in a strongly dominant position, all I can do is look at what all this selling-at-a-loss must be costing them and worry about how they intend to make it all back (and more besides, presumably).