Kairon Gnothi

Obviously Seth Godin understands the importance of Kindle well enough to refuse to appear on it. And Amazon, probably understands neither Seth nor their own Kindle. Nor does Sony…I really wonder what goes wrong with them.

As Seth said, Kindle is the chance for Amazon to jump over the book publishers and reach both the writers and the readers directly. Kindle, as a kind of channel, can turn Amazon From a online bookstore to a powerful publisher, or the most powerful publisher with unlimited exposure.

The amazing fact is that Amazon has no idea of its chance at hand. When a Kindle costs something like 500$ and each e-book downloaded costs $9.9, and reading a formerly blog costs extra, Amazon docilely continues its role of a salesman- just adding a machine into its category list.

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We have been talking about the letter “E” for a long time. E-music, E-book, E-image and E-motion, go together with equally fascinating portable devices. Along with their doomed popularity, pricing for those “E” things becomes a big problem, since humans’ thousands years of pricing experience cannot be applied here. In the past we sell REAL things- a book, a CD, or a picture which has its cost- fixed cost and variable cost, and however cheap those things may be, the marginal cost always stays above zero. This is a reason why we agree to pay for them. We pay because we know they do cost. But when we turn to “E” things, marginal cost of which is (almost) zero, we just cannot help asking why we have to pay the same for each item.

The logic is:
1. You can charge a rather low price but still make sums of profit, so long as the average cost on each item is below the selling price.
2. So long as you sell plenty enough, the total cost will be attenuated on each item sold and goes to zero.
3. If your pricing is low enough, it is possible that you sell a almost countless number to get a near-zero average cost.
Then we go back to 1.

By this logic I believe a periodically package will be the dominating pricing model for E-products. They should not be charged by item since everything changes with the total quantity. In Hong Kong mobile phone users can download unlimited numbers of MP3 at 12 HK dollars a month. It is successful. And perhaps only in this way it can be successful.

In the E-music industry, the recent trend in the U.S. is increasing doubt on DRM protection and MP3 priced at $X/each. In my opinion DRM is something goes against the spirit of internet. And pricing an MP3 at X dollars each- however small that X can be, just shows the sellers are still living in the “pre-E” times. They are pricing electronic items the same way they priced a loaf of bread or a jar of jam.

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Another pre-E mentality is that when people download MP3s or books or whatever, the sellers think themselves as giving things out rather than receiving things. This is another reason why the E-manufactures are still so eager to charge. They do not realize that they have been (partially) paid back with what is probably the most precious in this world- attention. And attention increases as they hand out more. They need to take the attention income into consideration when setting up the break-even point.

Take music for example, you may give music for free through the net, even when you are not paid back in money you are still paid by attention. With enough attention and exposure you can have a music-star. Well, with a star, you have 100 other ways of making money.

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We can explain this in a third way. Kindle is a device for users. But for Amazon, it is actually a sales channel. If I have a Kindle on hand, in other words Amazon has built a portable-book store with me. Well, if I can walk into a bookstore without any admission, then why should I pay for a Kindle? Am I not going to buy books in this store? Aren’t you going to charge the books?

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In conclusion, for Kindle, Amazon has three choices at least:

1. Sell a Kindle at $500 but give the books for free, and make a return by its exposure power- advertising, why not? (The broadcasting industry model)
2. Hand out Kindles for free and sell E-books at a reasonable price (the publisher model)
3. Sell Kindle at $500 dollars each and offer a package service, for example $50 per year for unlimited downloading. (Cost attenuation logic)

But we all know that Amazon has chosen the bread and jam :P