Monday, February 15, 2010

Amazon to Give Free Kindle to Prime Members?


Last Friday Michael Arrington at Tech Crunch reported that a "reliable source" at Amazon informed him the online bookstore is considering giving a free Kindle to every prime member. Rumor or true?

Prime membership in Amazon costs $79 per year and entitles members to free two-day shipping, regardless of the amount spent. Clearly prime members represent Amazon's most loyal customers. So the question is--would putting a Kindle in each member's hands make them buy even more books?

I'm assuming that a free Kindle would mean one unit per paid membership. When you sign up for prime, you can have a total of four people per household share the membership.

According to Tech Crunch, Amazon first has to figure out how to give away all these Kindles without losing a ton of money. Which led me to wonder--how much does one Kindle unit actually cost Amazon?

The market research firm iSuppli last year figured that each Kindle 2 costs about $185 to make. The firm's analysis involved taking a unit apart and identifying each part's supplier and cost. iSuppli estimated the display to be the most expensive part at around $60. The second most expensive is the data module from Novatel Wireless, costing about $39. But of course these are merely manufacturing costs. Marketing, product development, etc. would be in addition. Metue.com guesstimated Amazon's total costs to be between $210 to $250 per unit. At that time, however, the Kindle 2 sold for $359. Its sale price has now dropped to $259. Perhaps Amazon has already made back much of its product development costs and so could afford the price drop.

At any rate there's much more to be considered for such a freebie promotion than mere cost per unit. Amazon clearly wants to be the leader in ebook sales. More Kindles in the hands of more readers = more sales. And prime members, already being in the top percentage of book purchasers, would be all the more likely to order ebooks. It's just so easy. You can decide you need a book to read, and have a new novel in 60 seconds--without even leaving your chair. So surely Amazon is running such numbers as--for each free Kindle, how much more can we expect in book sales? How long would it take us to make back the cost of the Kindle? And what happens when we figure in the saved shipping costs for those prime members when they order ebooks instead of hard copies?

If this is a mere rumor leaked by Amazon--hey, look at the free publicity they're getting on the Internet about their prime membership program. My guess is, membership will rise just because of the rumor itself.
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2 comments:

Timothy Fish said...

I don't know if it's true or not, but we can hope. I signed up for Prime because I figured it would save me money and reduce shipping time. If they throw in something free to go along with it, I'm not going to complain.

Ben said...

Wait a second. Aren't they taking a loss on most of the books they sell, with the goal of getting more people to buy Kindles? (pretty sure this is true, at least for bestsellers)

So now they're going to take a loss on Kindles so that they can lose more money selling eBooks...so that they can sell more Kindles. Ultimately this seems to be an effort to grab more of the market. Then, when they're the leader, they can make back the money they've been losing by charging more than market price.