Seth Godin is usually the contrarian in the crowd. However, after reading this post about what Amazon should do with the Kindle in light of the mega-success of the iPad, I’m beginning to suspect that he may have fallen into the classic trap of thinking that lower prices are enough to woo customers and build long term market dominance.
Seth suggests that Amazon bring down the price of the Kindle to $49, strip down features and build market-share.
Here are my thoughts on this situation:
- Apple is said to be selling an iPad every 3 seconds, and Seth seems to say that Amazon should drop Kindle prices to compete with the iPad. Just because Amazon reduces the price on the Kindle does not mean that people will stop buying the iPad. Amazon has gotten suckered into a war that need not have been fought. Worse, they are fighting it on Apple’s territory, and Seth appears to want Amazon to intensify the war through a price battle. But the Kindle was originally positioned as a reading-only device. The iPad is positioned as an entertainment device where you can play games, listen to music, watch movies, surf the net and also, as an additional feature, read books. They are two completely different devices with different uses and target markets.
- Reducing prices makes the Kindle product a commodity like PCs or early-day MP3 players. And you will soon have a bunch of Chinese and Taiwanese brands entering the market with me-too competitors. Sure, Amazon does have distribution power with book-publishers and a large entrenched market and powerful brand. But on the other hand, if Amazon plays the price game, consumers will view the Kindle as a commodity and may be more willing to switch to a cheaper brand. Further, book-publishers will also want to find new distribution channels and will probably be happy to back new entrants. People associate high prices with better quality. Remember the iPod which came out with a higher priced product in the era of really cheap and commoditized MP3 Players?
- By positioning itself as a premium, specialist, reading device for book-lovers Amazon will continue to build on its existing beach-head. For example, I did a quick test and asked author Chetan Dhruve, who is a voracious reader, if he would buy the Kindle even though the iPad can do all that the Kindle can do and more. Chetan’s answer was an unequivocal YES. He would still buy the Kindle. Serious book-readers like Chetan don’t want their book-reading devices to add complexity – they already have other devices for that.
- Amazon may have had great ambitions of building a whole new platform when it launched. Unfortunately, the ground realities changed with the launch of the iPad. There is no way Amazon can win the game if it thinks of itself as being in the platform game. The entertainment platform war is already lost. Amazon would do well to now salvage it’s position and build a highly profitable niche business targeted at the exclusive activity of reading.
- Of course, you have had situations in the past where a company brought down prices on a platform and this created a virtuous cycle of increased adoption from consumers which led to more applications being developed for the device which in turn led to more consumers adopting the technology. This is what Microsoft did very successfully in order to win the operating system market. If Amazon wants to take the approach of being a platform winner, it should think of positioning itself as a platform for reading not as a platform for entertainment. That position (of being a platform for entertainment) has already been lost to the iPad. Bringing down prices will do nothing to salvage the situation. It may however, make it worse. Further, too many companies are already in the general entertainment platform game (Microsoft being the prime player.)
- iPad is positioned as all things to all people. Only a company with Apple’s design legacy and hordes of rabid consumers can pull off such a feat. Now by positioning the Kindle as a potential iPad competitor, people get confused. They begin to think that the Kindle is also all things for all people. And this means big trouble for Amazon.
- Apple can claim a number of things when it talks about the iPad. But the ONLY thing it CANNOT claim is to say that “the iPad only does book-reading.” Amazon should stress this point over and over again and make it clear that the Kindle ONLY does reading. It does not do games. It does not do video. It does not do music. Such an approach of minimalism has worked time and again in the past. Most recently this approach of doing less has worked for The Flip video camera which cut out all bells and whistle’s to deliver a highly successful, simple, video camera. Sometimes LESS IS MORE.
- By dropping prices, Amazon is giving consumers the impression that it was ripping them off with an overpriced product in the early days of its introduction. Sure, most tech companies skim the market by pricing high initially. Also, as volumes increase, per unit manufacturing costs come down. But most tech companies bring down prices a little more slowly over time and a little less steeply. Now, the average consumer is thinking that he should wait for a few more months before buying a Kindle since the price may drop further.
- Of course, there is a threat that the Kindle can get killed because what it offers has simply become a feature of the iPad. But the reality is that only deep differentiation combined with focus builds long term monopolies. Amazon’s mantra and message to Apple should be, “I’m going to deepen into what I’m doing rather than broaden my offerings to compete with you. In other words, Amazon should add so many new attributes (features, services and technologies) to it’s Kindle that people who are serious about reading will still buy the Kindle even if they already have an iPad.
Only deep differentiation combined with focus builds long term monopolies. In the long run, if Amazon plays the game right, the two products should not be comparable. Like chalk and cheese. Or grapes and avocados.
