5 ms·
> 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 o
by 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 agoExactly - they are essentially selling a "I'm a cheapskate" version and a "I can afford to pay more" version.
- Flenser 15y agoCall 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 agoSure, 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 agoIt 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 agoThat'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 agoI 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.
- dpark 15y agoOf course you can. It's the same economics whether the incremental costs are $2 or $80. You could make a comparison between the Kindle and the Camry the same way. Both exploit price elasticity by segmenting and selling nearly the same product at very different price points. It's irrelevant that the Camry's CoG is probably 200 times that of the Kindle. What's different about the Kindle vs Windows is not the CoGs. What's different is the indirect pricing. Amazon is willing to sell the Kindle for cost because they know they'll make their money in sales of books. Microsoft won't really make any extra money just because you buy Windows. (Windows 8 with the App Store will probably change that somewhat.) On the other hand, Microsoft sells Windows to OEMs very cheap, because there's value in having such huge market share.