4 ms·

I think the real question is: why is putting ads on our reading devices worth $50 to advertisers? We can be proud and say that such ads have no effect on our be

by asolove 15y ago

I think the real question is: why is putting ads on our reading devices worth $50 to advertisers? We can be proud and say that such ads have no effect on our behavior, but statistics say otherwise. Certainly I see a lifestyle difference between friends who watch TV and those who don't, and I spend and desire much less now that I only occasionally watch movies on Netflix. So it's a Catch-22: you can save money on this purchase, but only by ultimately spending more on things you will later be convinced that you need.

achompas 15y ago
Agreed. No TV means no restaurant commercials, so I've been eating at home more often. On the other hand, I bought a reading light after seeing a Kindle ad for it. The Kindle has also saved $15 on Amazon purchases I would've made anyway, though. I dunno, it really depends on your taste for consumption.
esrauch 15y ago
> why is putting ads on our reading devices worth $50 to advertisers? We can be proud and say that such ads have no effect on our behavior, but statistics say otherwise. This does not actually have to be true. Think about Windows Home vs Professional; it actually takes Microsoft much more work to offer both rather than offer just Professional. The experience is strictly worse for the user, and Microsoft makes less per sale on Home. So why do they even have a Home edition? It's because of market segmentation and pricing strategies. If it costs $70 marginal cost to manufacture a kindle, you will make some amount of money from each person that pays $79. What if $9 * # of potential purchases at that price point is less than the flat R&D costs? Then you can't make money at that price point. Now imagine all the kindles cost $100; a lot less people might buy it at $100 than would at $79. It's actually often in the best interest of the company if they could get half the people to pay $100, and anyone who would refuse to pay that to still buy it at $79. The only way to make that happen is to have to make some sort of differentiating factor that is minor enough so price sensitive people will still buy it, but that people who have the extra money will still pay the higher price. Windows professional is the same as basic for the vast majority of people, yet people still buy professional because to the people who are less price sensitive, it's worth it to not even hypothetically be missing features. In that way, they could easily be making $0 from the ads, or even negative income by showing the ads and still have it be a good idea to make a version with ads that costs less than the version without ads. It sometimes makes sense for a company to spend more money making a deliberately inferior version.
- nobody314159 15y ago
  Exactly - they are essentially selling a "I'm a cheapskate" version and a "I can afford to pay more" version.
- Flenser 15y ago
  Call me cynical, but I think the only reason the more expensive option is available is so that most people will accept ads on the cheaper version. If they actually allowed me to put my own images onto the screensaver I might actually go for the more expensive option but as it is I'm bored with the screensavers on my current kindle and wouldn't mind nice looking ads that were constantly changing.
  - achompas 15y ago
    Sure, you're absolutely right. Regardless, both versions exist, and I don't care for creepy pictures of Jules Verne so I'm going for the ads!
  - esrauch 15y ago
    It almost certainly voids your warranty, but you can actually root kindle3s or under pretty easily and install a program/mod that lets you change those backgrounds.
- losvedir 15y ago
  That's an interesting point, and changes how I look at the new kindles. I had assumed the marginal cost was closer to the ad-free version, and the ads subsidize the price for those who can't afford that. But if the marginal cost is less than $79 it could just be an elaborate price discrimination strategy. Fascinating! I guess the real question, then, is what's the marginal cost of a Kindle? I haven't seen any tear downs of the new version indicating the component prices.
- SoftwareMaven 15y ago
  I don't think you can compare a physical product with software like this. The incremental cost of goods of MS Home is a couple dollars; the incremental CoGs for the kindle may be more than the $79 price. At the very least, a segmentation needs to cause CoGs to be covered (note that those CoGs might be covered by the more expensive kindle). Of course, engineering time needs to be taken into account to develop the segmented products. I don't think the $30 will be earned in ads, but the strategic value of a kindle or two in every house is big.

by asolove 15y ago

achompas 15y ago

Agreed. No TV means no restaurant commercials, so I've been eating at home more often. On the other hand, I bought a reading light after seeing a Kindle ad for it. The Kindle has also saved $15 on Amazon purchases I would've made anyway, though. I dunno, it really depends on your taste for consumption.

esrauch 15y ago

> why is putting ads on our reading devices worth $50 to advertisers? We can be proud and say that such ads have no effect on our behavior, but statistics say otherwise. This does not actually have to be true. Think about Windows Home vs Professional; it actually takes Microsoft much more work to offer both rather than offer just Professional. The experience is strictly worse for the user, and Microsoft makes less per sale on Home. So why do they even have a Home edition? It's because of market segmentation and pricing strategies. If it costs $70 marginal cost to manufacture a kindle, you will make some amount of money from each person that pays $79. What if $9 * # of potential purchases at that price point is less than the flat R&D costs? Then you can't make money at that price point. Now imagine all the kindles cost $100; a lot less people might buy it at $100 than would at $79. It's actually often in the best interest of the company if they could get half the people to pay $100, and anyone who would refuse to pay that to still buy it at $79. The only way to make that happen is to have to make some sort of differentiating factor that is minor enough so price sensitive people will still buy it, but that people who have the extra money will still pay the higher price. Windows professional is the same as basic for the vast majority of people, yet people still buy professional because to the people who are less price sensitive, it's worth it to not even hypothetically be missing features. In that way, they could easily be making $0 from the ads, or even negative income by showing the ads and still have it be a good idea to make a version with ads that costs less than the version without ads. It sometimes makes sense for a company to spend more money making a deliberately inferior version.

nobody314159 15y ago
Exactly - they are essentially selling a "I'm a cheapskate" version and a "I can afford to pay more" version.
Flenser 15y ago
Call me cynical, but I think the only reason the more expensive option is available is so that most people will accept ads on the cheaper version. If they actually allowed me to put my own images onto the screensaver I might actually go for the more expensive option but as it is I'm bored with the screensavers on my current kindle and wouldn't mind nice looking ads that were constantly changing.
- achompas 15y ago
  Sure, you're absolutely right. Regardless, both versions exist, and I don't care for creepy pictures of Jules Verne so I'm going for the ads!
- esrauch 15y ago
  It almost certainly voids your warranty, but you can actually root kindle3s or under pretty easily and install a program/mod that lets you change those backgrounds.
losvedir 15y ago
That's an interesting point, and changes how I look at the new kindles. I had assumed the marginal cost was closer to the ad-free version, and the ads subsidize the price for those who can't afford that. But if the marginal cost is less than $79 it could just be an elaborate price discrimination strategy. Fascinating! I guess the real question, then, is what's the marginal cost of a Kindle? I haven't seen any tear downs of the new version indicating the component prices.
SoftwareMaven 15y ago
I don't think you can compare a physical product with software like this. The incremental cost of goods of MS Home is a couple dollars; the incremental CoGs for the kindle may be more than the $79 price. At the very least, a segmentation needs to cause CoGs to be covered (note that those CoGs might be covered by the more expensive kindle). Of course, engineering time needs to be taken into account to develop the segmented products. I don't think the $30 will be earned in ads, but the strategic value of a kindle or two in every house is big.