Amazon below cost? • 26 October 2011 • The SnowBlog
Amazon below cost?
I said when I talked about the Kindle Fire (=Amazon's lower-price cousin of the iPad) that Amazon weren't shy of selling at or below cost. They do it with regular books and e-books, so it would probably appeal to them to do it with the Fire. Well, Amazon's profits are down 73% for this previous quarter despite sales being up. Sales up but margin down could imply serious capital investment (though I think the timing would be peculiar) but it has to include lots of below cost selling too.
That's slightly worrying because it represents a gamble. Why would you sell e-readers, and perhaps e-books too, at a price that loses you money? Because you plan to make it all back - and more besides - once you've cornered a chunk of the market. If Amazon weren't planning to establish at least a partial monopoly and then extract monopoly profits I can't see why they would have allowed their margin to drop like this. Apple, by contrast, don't pay you to buy their iPads - they make a good profit on every one, so when their sales are up, so are their profits.
It seems clear to me that Amazon are intending to control a fat chunk of the e-book market. I still have no suggestions for how that control might be loosened a little, but it's probably worth spreading the word about it while there's time to plan a response.
And to be clear, I think a lot of the reason for Amazon's success is that they do a better job and are smarter than their competitors. But I think they want to be the only game in town and I want us to retain some choice (which might also help us retain some profit margins).