Eric Hammel's Blog - Posts Tagged "marketing"
Kindle has been much on my mind since May, when I decided to convert pretty much my whole body of work to Kindle editions. I'm at about thirty conversions with five to go.
I worked in marketing for many years, and I am in the habit of idly mulling over new business models as I encounter them. Kindle was a chimera until I realized yesterday that it markets in reverse on the old razorblade model.
In marketing, "razorblade" takes its meaning from the old Gillette safety razor. They gave you the razor for free or nearly free and sold you blades forever. Another razorblade is the inkjet printer: cheap printer, expensive ink. The thing a razorblade model wants to sell is the one that will sell over time.
Kindle is a reverse razorblade. Here's how it works: The Kindle is expensive. It is also proprietary; you can only buy it from Amazon.com. The books are the consumable, but they are the cheap (or even free) piece of the equation. You can only acquire them from Amazon.com, but they are not proprietary. The publisher and author own rights to the book. Amazon gets up to a 65% sales commission for selling it.
Why is Amazon into this? It must make a huge profit from each Kindle sold (and they are all sold), but the Kindle owner must rationalize the very steep up-front expense. He does so from a promise of cheap books--cheap consumables. The price for Kindle editions of trade books is typically $9.99. The publisher gets 35% of its suggested retail price (SRP), and until a few weeks ago (July 2009), the Kindle editions were sold for 20% off SRP, or usually $7.99. This is well below the roughly $10.25 one usually pays for a discounted trade paperback edition and exactly the same as a mass market paperback.
Amazon makes the claim that a Kindle owner can eventually earn back the cost of the Kindle by saving money on the reading matter. Does anyone do the math? That's about 1,923 books at $.26 saved/book ($10.25 trade paperback vs. $9.99 Kindle edition)! Oh, and Kindle "shipping" costs, if there are any, must be very close to zip. Amazon pays something when you order $25 worth of hardcopy books and request free shipping.
It gets better. In early July, as SRPs began to balloon to as high as $16.50, bands of marauding readers strongarmed many Kindle publishers into holding steady on the de facto $9.99 SRP. At the same time, Amazon discontinued the 20% discount on Kindle books. $9.99 means $9.99.
An industry article in May guessed that Amazon made 6% profit on a $9.99 book selling for $7.99. If the $9.99 book now sells for $9.99, they're up to 26% profit. It is also estimated that 1,000,000 Kindles dot the landscape. If the profit on each is $100, then Amazon has socked away at least $100,000,000 on Kindle hardware sales alone.
The $3.50 I get from a Kindle sale is used to amortize the cost of making the Kindle edition (scan, OCR, edit, reconfigure, proof, and post), paying author royalties, and amortizing the cost of back-office work such as the accounting and due diligence. At some level a single $3.50 Kindle sale has replaced the higher return (at least $5.00) derived from the sale of a hardcopy book, so some proportion of potential profit is donated by the publisher and author to the Kindle/Amazon cause.
I ask myself: Is it at all possible, based on what we know about Amazon.com business ethics, that the roving rampage to demand $9.99 books was instigated by Amazon sock puppets bent on the channeling resentment people feel if they do the math on their Kindle purchase after the Kindle is no longer returnable? Is my accession to the $9.99 "standard" price motivated by Amazon's unbelievably smart marketing plan, which turns the best consumer marketing plan of all time on its head? Am I in the long parade of addled publishers who are racing to provide cheap razorblades that enable Amazon to sell its hideously expensive razor to more unwitting dupes because of the promise of "cheap" books?
I do not know. I think I see a pattern, but I cannot say this is so with any certainty. What do you think?
I worked in marketing for many years, and I am in the habit of idly mulling over new business models as I encounter them. Kindle was a chimera until I realized yesterday that it markets in reverse on the old razorblade model.
In marketing, "razorblade" takes its meaning from the old Gillette safety razor. They gave you the razor for free or nearly free and sold you blades forever. Another razorblade is the inkjet printer: cheap printer, expensive ink. The thing a razorblade model wants to sell is the one that will sell over time.
Kindle is a reverse razorblade. Here's how it works: The Kindle is expensive. It is also proprietary; you can only buy it from Amazon.com. The books are the consumable, but they are the cheap (or even free) piece of the equation. You can only acquire them from Amazon.com, but they are not proprietary. The publisher and author own rights to the book. Amazon gets up to a 65% sales commission for selling it.
Why is Amazon into this? It must make a huge profit from each Kindle sold (and they are all sold), but the Kindle owner must rationalize the very steep up-front expense. He does so from a promise of cheap books--cheap consumables. The price for Kindle editions of trade books is typically $9.99. The publisher gets 35% of its suggested retail price (SRP), and until a few weeks ago (July 2009), the Kindle editions were sold for 20% off SRP, or usually $7.99. This is well below the roughly $10.25 one usually pays for a discounted trade paperback edition and exactly the same as a mass market paperback.
Amazon makes the claim that a Kindle owner can eventually earn back the cost of the Kindle by saving money on the reading matter. Does anyone do the math? That's about 1,923 books at $.26 saved/book ($10.25 trade paperback vs. $9.99 Kindle edition)! Oh, and Kindle "shipping" costs, if there are any, must be very close to zip. Amazon pays something when you order $25 worth of hardcopy books and request free shipping.
It gets better. In early July, as SRPs began to balloon to as high as $16.50, bands of marauding readers strongarmed many Kindle publishers into holding steady on the de facto $9.99 SRP. At the same time, Amazon discontinued the 20% discount on Kindle books. $9.99 means $9.99.
An industry article in May guessed that Amazon made 6% profit on a $9.99 book selling for $7.99. If the $9.99 book now sells for $9.99, they're up to 26% profit. It is also estimated that 1,000,000 Kindles dot the landscape. If the profit on each is $100, then Amazon has socked away at least $100,000,000 on Kindle hardware sales alone.
The $3.50 I get from a Kindle sale is used to amortize the cost of making the Kindle edition (scan, OCR, edit, reconfigure, proof, and post), paying author royalties, and amortizing the cost of back-office work such as the accounting and due diligence. At some level a single $3.50 Kindle sale has replaced the higher return (at least $5.00) derived from the sale of a hardcopy book, so some proportion of potential profit is donated by the publisher and author to the Kindle/Amazon cause.
I ask myself: Is it at all possible, based on what we know about Amazon.com business ethics, that the roving rampage to demand $9.99 books was instigated by Amazon sock puppets bent on the channeling resentment people feel if they do the math on their Kindle purchase after the Kindle is no longer returnable? Is my accession to the $9.99 "standard" price motivated by Amazon's unbelievably smart marketing plan, which turns the best consumer marketing plan of all time on its head? Am I in the long parade of addled publishers who are racing to provide cheap razorblades that enable Amazon to sell its hideously expensive razor to more unwitting dupes because of the promise of "cheap" books?
I do not know. I think I see a pattern, but I cannot say this is so with any certainty. What do you think?
