Posted by Bill
It’s one of the oldest chestnuts in consumer product marketing: Give away the razor so people will buy the blades. Now we’re seeing that idea crop up in discussions about the new e-reader price war.
After Barnes & Noble and Amazon each cut the prices of their e-book reading devices earlier this week, some pundits resurrected the razor/blade analogy, noting how cheaper Nooks and Kindles – and wide availability of competitors such as Apple’s more feature-rich iPad — would significantly expand the mass market for electronic books, magazines and other material traditionally only offered on dead trees.
It’s not surprising e-reader prices would drop sharply; it happens with every new, desirable technology device (Remember how much your first iPod cost nine years ago?) But if these guys want to remain competitive and really expand the e-book market, they should avoid the razor/blade model. Think about it. The razor is now a commodity item, where the only innovation occurs on the “content” side of the equation: Blades, shaving cream, after-shave lotion, etc. As organizations that are retailers more than content innovators, do Barnes & Noble or Amazon really want to break even on the device side while having to compete against foes (Google, Apple) with storied expertise on both the device and content sides of the business equation?
Further, even cutting prices to seed the e-reader market could be a losing battle for Barnes and Amazon. Analysts in The Wall Street Journal estimate U.S. sales of about 6.6 million dedicated e-book readers this year; by comparison it took Apple about a month to sell its first million iPads in the same market.
A better model for the e-book purveyors might be the iPod, which Apple never has allowed to become a commodity even though its relative price has fallen sharply over the past decade. According to the Journal, Amazon and Barnes & Noble make money now from e-book sales. But they face unprecedented threats on the content side, where Google and Apple both have made major strategic inroads to their turf. Giving away the reader may win the short-term battle for price-conscious consumers, but could amount to a Pyrrhic victory if the booksellers don’t create any real value, either for authors or book buyers, that makes them the preferred choice for electronic reading content.
