I'm not sure why, but some analysts seemed a little surprised about Amazon.com's announcement on Wednesday that it would begin offering Amazon e-books on the iPhone and iPod Touch, and move beyond the confines of the Kindle.
First of all, the company had effectively confirmed off-Kindle reading access in February, so it shouldn't have surprised anyone. Second, anybody who knows anything knows that it's all about the razor blades (the e-books) and not the razor (the Kindle).
Like the game console world, the real profits aren't in the hardware but rather the software. Yes, the Kindle 2's hot now, but to reach a larger audience, Amazon will eventually have to reduce the price for the reader and shrink its margins.
By contrast, the margins on e-books should remain pretty beefy, and you can imagine all the cost savings involved when you don't have to deal with warehousing and shipping physical books. It's a great business model.
But there's just one problem. While Amazon might be able to find a market for $9.99 books on the Kindle, the iPhone-iPod Touch world is a very different place. Very few people are willing to pay that kind of money for any sort of application, let alone an e-book.
In the Apple application world, the sweet spot for selling anything seems to be less than $4.99--and more like $.99 or $1.99. Sure, you're going to get some bestselling series with almost cult-like followings (read: "Harry Potter" and "Twilight"), but the vast majority of books being "sold" on the iPhone are very cheap--and rightly so because the overall iPhone-reading experience doesn't justify you spending $10 (or even $5) on an e-book. (See Nicole Lee's in-depth piece on comparing the Kindle 2 reading experience to that of the iPhone's).
Of course, the Kindle app isn't the first way to read e-books on the iPhone--there are already dozens of paid and free reader applications (and books-as-apps) available on the App Store. And taking a look at the list of top paid (nonfree) book or reader apps will give you an idea of how pricing works.
Books in the "Twilight" series, and one app called "50 Great Books for 10 Bucks," are the only ones in the top 20 that have a $9.99 price tag. Arguably, the perfect book for Apple's smartphone, "iPhone: The Missing Manual" (written by The New York Times' David Pogue), sells for $4.99. But it took a big hit in sales when the publisher tested a $9.99 price point.
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