I read a post today on Kevin Kelly‘s blog speculating that sometime in the not so distant future, Amazon may soon be giving Kindle’s away for free. Yep, free. Why would they give this coveted device away? Well, because the company makes huge money selling you the books that are loaded onto the device, not to mention any other products you purchase from them while on the site. Once the cost of making the device falls far enough below the revenue that customers who have them generate in return, it makes perfect sense for Amazon to get Kindle’s into the hands of as many people as possible. More Kindle’s = more Amazon customers = more books sold through Kindle store = more money for Amazon = tougher for others to compete with them both on the device side and on the content side.
Speculation is that initially free Kindle’s would be given to Amazon Prime customers – people who pay $79 a year in exchange for free 2 day shipping on products. This move would give Amazon more market share, deepen the relationship of customers with Amazon, cement loyalty to the Kindle format, and incentivize more consumers to become Amazon Prime members. Not only that, it would move Kindle more toward the position of industry standard for electronic books, allowing it to build publishing channels and perhaps spread more aggressively into movies and music distribution in the future.
Companies like Netflix and Amazon are using pricing data in conjunction with product development cycles and consumer behavior patterns to create new ways of doing business. These methods have the power to vaporize competition overnight – see Blockbuster Video & Borders for examples. This free Kindle initiative represents a powerful experiment in pricing strategy, something that is becoming increasingly important for marketers to understand. The idea of giving Kindles away for free isbrilliant, creative marketing and it is the type of thing you will see more of in the digital age. Creativity is not just limited to ad campaigns, logos, and slogans. It is fundamental to every facet of marketing, especially price. Whether Amazon moves forward with this or not, the fact that they could make an economic argument to just give away one of the hottest products on the marketplace speaks to the growing complexity and importance of pricing strategy.
The economics of Free continue to fascinate.