Monday November 21, 2011 – Stewart Wolpin
This seems to be color LCD e-reader week, what with Amazon's Kindle Fire and Nook's Tablet charging into both online and retail shops within days of each other.
What is difficult to suss out is what business Amazon and Barnes & Noble think they're in – the content business or the device business?
Or, perhaps more importantly, is either company in the business of making money?
It looks as if Amazon is leaning toward being in the content business but, harkening back to its early days, not making money. Priced at $199, each Fire sold will reportedly lose Amazon $50.
Amazon figures it'll make up the difference on its content cornucopia – e-books (duh), magazines, movies, music, et al. After all, buyers will want to fuel their Fires.
It's harder to discern B&N's content v. hardware focus, though.
B&N's challenge
Barnes & Noble must think it's in the gadget business since it's selling the Nook Tablet for $50 more than the Fire, assumedly to make a profit on the hardware (or at least break even).
B&N's pricing makes sense on the surface, since the bookseller lacks the multimedia content to offset a lower tablet price as Amazon does.
Of course, B&N can't discuss its content deficiencies compared to Amazon. Instead, it will attempt to justify its higher price by stressing Nook Tablet's technical advantages – it has twice as much RAM (1 GB for Nook vs. 512 MB for Fire) and twice as much flash memory (16 GB vs. 8 GB) as Fire, plus a MicroSD card slot.
E-reader consumers, however, are unlikely to look past the price, especially since all purchased content from both book sellers can live in the cloud, and they perceive they don't need a lot of digital storage space for books.
And that's not even considering the insulting new price on the original Nook Color. The gleaming new Fire for $199, or B&N's old, clunky POS that's already been replaced for the same $199? Ooh, there's a decision!
With this ridiculous $199≠$199 price equation staring them in the face, consumers will need to be blown away by something wondrous on the Nook Tablet to justify spending an extra $50 – and they won't be. Consumers will project the poor value proposition of the over-priced old Nook Color onto the new Nook Tablet since the two are essentially twins, a similarity made more stark since they'll likely be placed in close proximity to each other in B&N stores.
In fact, it'll be the Fire that blows consumers away, thanks to its fiery moniker, its sleeker looks and its revolutionary lickety-split-loading Silk Web browser.
A different approach?
What puzzles me, considering the uphill device and pricing scenario it created for itself, why B&N didn't attempt a radical pricing approach.
What about a subsidized pricing model such as the old book and record clubs – you know, four books for $1, 12 record albums (ah, remember records?) for a penny (plus the hidden 13th), as long as you bought lots of books/records over the next year or two.
Imagine how Nook Tablet would sell if it were priced at, say, $149 (and blew out the old Nook Color at $99), and how many e-books it would subsequently sell. At $249, B&N risks losing the gains it made vs. Amazon with its only-LCD-e-reader game-in-town Nook Color, and losing the e-book battle.
Of course, both booksellers realize they are not just competing against each other. They also are competing against Apple, which suffers none of Amazon's or B&N's hardware pricing problems or content vs. hardware business schizophrenia.
This may be LCD e-reader week, but it's going to be a fascinating LCD e-reader fourth quarter.
