When I first read the new that Amazon would begin selling an ad-supported Kindle, my heart sank. This is the beginning of the end, I thought. But that was only because the Businessweek article about the change left out one key detail: the ads will not be shown during the reading experience. Jason dug up those details.
Amazon will only be showing the ads on the Kindle home screen and on the screensavers, which is great. In exchange, people will be able to buy a Kindle for $25 cheaper — $114. An attractive price, no doubt. But it’s also ones that begs the question: why on Earth not go to the killer $99 price point?!
Imagine a Kindle for $99. There would be a frenzy. Amazon would sell so many of them.
Even though the $15 price difference may not seem like much on paper, the psychological importance of losing that third digit cannot be downplayed. It’s the very reason why many items are often sold for $9.99 instead of $10.00. And $0.99 instead of $1.00. And so on…
Now you absolutely have to believe that Amazon knows this. They’ve been the leaders in selling just about everything for a long time now. So you have to think they simply could not make a further $15 price cut work.
Amazon has always been cagey on Kindle sales, so there’s no way we can expect them to state their margins on the device. Others have estimated that the Kindle margins are likely “razor-thin” based on component tear-downs and other Amazon stated financial numbers. And when you take into account patents, development costs, marketing, etc, there’s a belief that Amazon may actually be eating money on each one sold.
So they must have looked over the potential numbers from advertising and determined that $114 was as low as they could go. But again, we’re just $15 away from the magical number!
I would bet that many people would gladly accept a Kindle with get this — two ads — running simultaneously on the homescreen if it meant a $99 Kindle.
Still, this is likely phase one of an experiment for Amazon. They’re probably eating money here to see how much a $25 price cut will jack up unit sales — and more importantly, Kindle book sales — and how much advertiser interest there will be. If either of those numbers are significant, maybe we will see the magical $99 Kindle just in time for the holiday season.
Remember when the Kindle was $399? You should, it was only three and a half years ago.