Wal-Mart Stores has waged an online book pricing war against Amazon.com, The Wall Street Journal reported Friday morning.
Wal-Mart sent the first salvo over Amazon's bow on Thursday when the retail giant announced that it would sell ten highly anticipated books for $10 on Walmart.com. Wal-Mart said Stephen King's upcoming hardcover "Under the Dome" and Sarah Palin's "Going Rogue" will be included in that grouping. Wal-Mart's prices include free shipping.
Not to be outdone, Amazon reduced prices to match Wal-Mart's pricing on all 10 titles. That was quickly followed by Wal-Mart's decision to reduce the prices on those books again to $9 late Thursday night. In response, Amazon reduced the prices of all ten titles to $9, as well. The company also reduced the books' Kindle pricing to $9. That's where the prices stand on both sites as of this writing.
Sarah Palin's book is going for $9 on Wal-Mart.
(Credit: Screenshot by Don Reisinger/CNET)"If there is going to be a 'Wal-Mart of the Web,' it is going to be Walmart.com," Walmart.com CEO Raul Vazquez told The Wall Street Journal in an interview. "Our goal is to be the biggest and most visited retail Web site."
As viable a goal as that may be for Wal-Mart, it could also cost the online-retail industry dearly. According to the Journal, Wal-Mart is already offering up to 200 best sellers for "50 percent of their list price." That's a figure that most retailers can't keep up with. And as the publication pointed out, it's a price point that could put smaller, less powerful organizations out of business.
"Retailers traditionally pay half the list price for a hardcover book," the Journal wrote in its report. "Assuming that's the case with Wal-Mart, its $10 sale price on 'Under the Dome' represents a 71 percent discount of the $35 cover price, which suggests the discounter will lose $7 to $7.50 on every copy it sells." Wal-Mart might be able to afford that, but other, smaller retailers might not.
But $10 might not be a figure that Wal-Mart picked out of the air. Quite the contrary, the retail giant might have chosen $10 because it's the same price Amazon is currently offering e-books for in its Kindle store. Wal-Mart is, so far, on the outside looking in at the e-book market and the sale of highly anticipated hardcovers for $10 might reflect that.
That said, the company told the Journal that its decision to drop the price of those major titles had nothing to do with the Kindle. Even so, Wal-Mart is a major retailer with loads of cash that it can easily put towards infiltrating a discount book market--electronic or otherwise. A loss on select titles might be worth it in the long run. It could stymie some of the Kindle's impressive growth. That might have been Wal-Mart's intention all along.
What do you think of this? Is Wal-Mart the hero for offering hardcover books at such discounted rates? Is Amazon wrong for matching its pricing? Let us hear your thoughts in the comments below.
Don Reisinger is a technology columnist who has written about everything from HDTVs to computers to Flowbee Haircut Systems. Don is a member of the CNET Blog Network, and posts at The Digital Home. He is not an employee of CNET. Disclosure.
If you've been curious to know what it costs to make the Kindle 2, iSuppli has dismantled Amazon's digital reader, taken stock of all its components, and come up with an estimated price tag of $185.49--or roughly half the Kindle 2's retail price of $360.
That figure doesn't include the fee Amazon pays Sprint for the Kindle 2's built-in "free" wireless service or any marketing costs, which can be substantial. So the true "actual" cost is probably significantly higher, though Amazon obviously preserves some of its margin by selling direct to consumers.
If I had to guess, I'd say Amazon was making more like $100 on each unit, give or take $10. That's still quite decent, and when you factor in the high margins on Amazon's $30 optional Kindle 2 cover, things look even better.
So, yes, there's probably a little room for a discount. But if you're looking for a Kindle 2 price cut anytime soon, I wouldn't count on it. If anything, the first Kindle 2 deal you'll probably see is Amazon bundling in a cover as a freebie.
Comments?
Updated at 12:45 p.m. to include quotes from Harvard economist Anita Elberse.
If iTunes shoppers truly believe in our free-market system, then they shouldn't worry about a $1.29 price for songs.
On Tuesday, Apple's traditional 99-cent song price was shelved. From now on, record labels can choose to charge $1.29 for new releases. Some older catalog titles will sell for 69 cents, and everything else will be available for the tried-and-true 99 cents. CNET first reported the price changes in January.
The blogosphere is full of gloomy warnings about how Apple's new pricing structure will alienate customers. But aren't consumers supposed to have the final say on market prices, at least in theory? Earlier in the day I wrote that if shoppers reject iTunes' three-tiered pricing scale, the big recording companies and Apple will be forced to retreat. I've since talked to a Harvard economist who told me that's not necessarily true.
Anita Elberse, associate professor at Harvard Business School, says each consumer has a "reservation price," or the maximum price they are willing to pay. Even if some consumers are not willing to pay the higher price, it is unlikely that all consumers will refuse to pay more--particularly the most avid fans of an artist. Collectively, consumers may not be nearly as powerful as some assume.
Elberse said finding someone's reservation price, however, is very difficult. She said the key question for Apple and the music labels is whether the people willing to pay 30 cents more for a song can make up the losses from those unwilling to pay.
"Most people in the industry that I've talked to say, 'yes, it's going to make up for that," Elberse said. "We might lose some people that are dropping out because their reservation price is below $1.29, but we make it up when we get 30 cents more from the people that stay. That is constantly the trade-off that you make."
There are limits to this concept, Elberse said. Apple could "jack up the prices to $10, and sales of music at that figure may not cover the losses from people who would refuse to buy at that price."
The new pricing scheme at iTunes could test customer loyalty like never before. Since launching in January 2001, iTunes has been synonymous with digital-music sales. Prices at the site have cost 99 cents for over five years.
The strategy has served Apple well. A recent survey by research firm NPD Group showed that 87 percent of people who buy digital music in the United States download from iTunes.
Why change now?
For years, the four biggest record companies have clamored for more control over pricing on iTunes. Apple relented, presumably in exchange for the right to sell songs stripped of copy protection software.
The big question is what the new prices will mean for Apple and the music industry.
After doing numerous tests, the big labels are confident that music fans will pay $1.29 for hit songs, according to industry sources. But in these uncertain times, determining what kind of revenue this might generate is unclear, the sources said. The recording industry is hoping that charging 30 cents less for older titles than iTunes' traditional 99-cent standard will reinvigorate sales.
It must be noted that most of the prices on iTunes are unchanged or reduced. Brad Stone at The New York Times found that of the 100 best-selling songs, only 33 are now selling for $1.29.
Of course, the music industry is trying to make up for dwindling CD sales and the losses from illegal file sharing. A lot of digital-music fans see the struggles of the recording companies as self-inflicted. They are unlikely to dig deeper into their pockets just to help the industry.
Music fans likely will do what they have always done; pay for those songs they value. Most certainly, they will vote on iTunes' new pricing with their dollars.
Wired's Gadget Lab blog has a story about how a group of about 250 Kindle owners are staging an online protest over Kindle e-books that cost more than $9.99. The weapon they're using is Amazon's own tagging system, as price offenders are getting hit with a special "9 99 boycott" tag.
The roving--and most likely growing--band of annoyed Kindle owners includes such folks as Connecticut librarian Crystal O'Brien, who spends "a few minutes every day in the Kindle book store tagging the more expensive digital books with the '9 99 boycott' tag and removing it once the price drops below the threshold."
Frame job: the Kindle version of "The Likeness" costs $4 more than the paperback.
(Credit: Amazon)I wish I'd known about the tag when I was searching for a new Kindle e-book the other day. I came across Tana French's "The Likeness" and was considering a purchase until I saw that the Kindle edition was priced at a shocking $14.27. What was so ridiculous was the $10.20 paperback version costs $4 less. However, I didn't notice the "9 99 boycott" tag until I read the Wired blog and went back to look to see whether it was tagged (it was).
Now, if you're new to the whole e-book pricing game, you might think Amazon's the villain here. But the unfortunate fact is that it's really the publishers who are behind the pricing.
Amazon isn't gouging the consumer, and according to my sources, may barely be breaking even on some best sellers that cost $10. You only need to look at the price of books in the eBook Store from Sony to get a pretty good idea that Amazon's trimmed its margins pretty close to the bone. (Typically, best sellers sell for a buck or two more in the Sony eBook Store--and Sony isn't turning big profits either).
Look, I understand publishers don't want to price the Kindle Edition too low for fear that it will hurt sales of the hardcover edition. But I still maintain Kindle best-sellers should cost a few bucks less than what the paperback version of the book would cost. Case in point: I'm not going to buy the paperback edition of "The Likeness" at $10.20. But I would have paid $7.99 for the Kindle version. Now, of course, no sale has been made.
To make my point, I'm slapping a 7 99 boycott tag on "The Likeness." An over $10 boycott is a start. But we really need to get to $7.99. Who's with me?
It was a rather blase day for Yahoo's closing stock price Friday. It didn't shoot to the moon on the latest Microsoft takeover rumor, nor crater to the Earth's core on fears that the software giant is never coming back in some shape or form.
CEO Carol Bartz
But, nonetheless, Yahoo's newly minted CEO, Carol Bartz, was likely taking notice. Her potential fortune is tied to Friday's closing stock price.
Bartz, under her compensation package, is eligible to reap the rewards of 5 million stock options, which carry an exercise price based on Friday's close of $11.73 a share.
There's a catch, however.
Bartz's shares won't begin to vest unless Yahoo's stock rises by a minimum of 150 percent above the exercise price. That means Yahoo's stock needs to climb to $29.33 a share and maintain that average closing price for 20 consecutive trading days, in order for Bartz to vest one-third of the 5 million shares.
And she needs to do this by January 1, 2013, or all 5 million options go poof.
If Bartz can hurdle the first leg of the Yahoo vesting challenge, she could find herself holding 1.67 million options with a value of roughly $48.9 million.
Potentially, there is even more to come.
Here's how Bartz can score the rest of the 5 million options. The methodology remains largely the same, except for the percentage increase required and number of shares that vest:
•175 percent increase, stock hits $32.26 a share, one-sixth of options vest.
•200 percent increase, stock hits $35.19 a share, one-sixth of options vest.
•225 percent increase, stock hits $38.12 a share, one-twelfth of options vest.
•250 percent increase, stock hits $41.06 a share, one-twelfth of options vest.
•300 percent increase, stocks hits $46.92 a share, one-sixth of options vest.
Compensation experts note Yahoo's stock option incentive is rather rare. Usually, options for CEOs vest over time and by achieving certain performance metrics. In Bartz's case, however, the 5 million shares are based solely on Yahoo's stock price appreciating over the next four years.
This type of options package ties Bartz's good fortune directly with that of Yahoo investors.
And given that the company now has shareholder activist Carl Icahn on its board, the chances of Bartz later getting her options re-priced at a lower strike price are slim to none.
Apple has taken issue with NBC's claims that the media conglomerate was able to change pricing policy at Apple.
NBC Universal executives have suggested that they agreed to start selling downloads of TV shows on iTunes only after being allowed more flexibility to set prices for its wares on iTunes. That's just not correct, Eddy Cue, the vice president in charge of Apple's iTunes Store, told CNET News on Wednesday evening.
On Tuesday Apple announced at the company's "Let's Rock" press gathering that NBC shows were returning to iTunes. A year ago, NBC yanked its show off iTunes over the issue of pricing. Following the press event Tuesday, JB Perrette, who runs NBC's digital unit, told CNET that Apple's increased flexibility on pricing led to agreement between the two companies.
He said that NBC was given a chance to charge $2.99 for high-definition downloads of its TV shows and that it also could sell catalog titles for 99 cents or $1 less than the price for the vast majority of videos sold on iTunes. NBC would also, according to Perrette, be given the opportunity to bundle TV show compilations and sell them for whatever it wanted.
However, all of this was available at iTunes before the NBC deal was struck, according to Cue.
Cue pointed out that while most TV shows sell for $1.99 on iTunes, retailers have always been allowed to sell videos for less. He said Viacom has offered many of its shows for 99 cents, including episodes of South Park and MTV's The Hills. The History Channel has offered shows such as Ice Road Truckers and Ax Men
"We've never told anyone they can't lower prices," Cue said.
Cue said that the $2.99 price NBC is selling its HD content for is the same price for all HD content. "People can see (Showtime's) Californication in HD live right now on the site," Cue said.
And when it comes to packages, Cue said there have been packages on iTunes before.
"If you look at some of the things we've done for holidays," Cue said, "we've had holiday packages with shows with the right themes. We've done things in the past with big name actors so we've packaged those things in the past."
Both Cue and Perrette say their companies are glad to be working together again, but what this disagreement over how NBC returned to iTunes illustrates is how the relationship continues to be a troubled one.
The two engaged in a public relations battle last year when NBC suggested that it wanted out of its iTunes contract. Apple fired back by accusing NBC of demanding that iTunes double prices of its content on the site.
This time around, NBC again was able to circulate it's version of events before Apple.
"Frankly, ever since we dropped our relationship with Apple last fall, they have made a gradual progression culminating in (Tuesday's announcement that NBC was returning to iTunes)," Perrette told CNET. "Originally, Apple had no film content (from the major motion picture studios) on the service because they were asking the film studios for years to accept a price that was below their DVD price.
"Apple realized it wasn't worth the fight anymore," Perrette continued. "They were better off to just have the content. So they agreed to the pricing that was at least equal to the DVD pricing."
Cue disagreed that pricing policy has changed at iTunes.
"We're glad to have NBC back and they are participating under the same terms with all of the other content providers."
Steve Jobs announces that NBC Universal is returning to iTunes.
(Credit: Jared Kohler/CNET )To get TV shows from NBC Universal back on iTunes, Apple yielded to some demands on pricing and packaging made by the media conglomerate, NBC executives said Tuesday.
Apple CEO Steve Jobs announced at the company's "Let's Rock" press event on Tuesday that NBC shows such as 30 Rock and The Office would return to iTunes a year after the entertainment company pulled out of iTunes.
Examples of how NBC can set its own prices on some shows came after the event. NBC announced that it would offer some catalog titles for 99 cents rather than the traditional $1.99 that Apple charges for TV downloads.
JB Perrette, NBC's president of digital distribution, said in addition the company will be allowed to set its own prices on special packages. For example, NBC could elect to offer a best-of Heroes compilation at a price that might offer consumers a better value than buying individual shows for $1.99.
What this means for consumers, however, is that Apple is slowly losing control over pricing of video content at iTunes.
Earlier this year, Apple allowed the studios to set multiple prices for movie downloads. Having a greater say over what to charge for content on iTunes has been a thorny issue with content companies. The question raised by NBC Universal's apparent victory is how long before the music labels demand the same concessions?
Apple stuck to its guns for a long time, say sources close to the negotiations. NBC, which claimed to have once accounted for 35 percent of TV-show downloads on iTunes, announced in August 2007 that it was pulling out of iTunes. The company said then that it was unhappy Apple wouldn't allow it to charge what it wanted for TV shows. Since then, the companies have held talks, but it took a year to get a deal done.
"To their credit, what (Apple) has realized is that having the best content and the widest breadth of content is more important than being too rigid," Perrette said.
A source close to the negotiations said that under the old terms, Apple wouldn't allow NBC to charge less for shows. This meant that selling catalog titles for 99 cents couldn't have happened.
Apple representatives could not be reached for comment.
Verizon Communications and AT&T have thrown the first blows in an impending broadband pricing war.
Last week, Verizon Communications said it will offer six months of free DSL service to new customers who sign up for a one-year contract and also use the company's traditional landline voice service. The promotion is available until the end of October.
Verizon's DSL service typically costs between $19.99 per month for 768Kbps downloads and $42.99 a month for 7.1Mbps downloads. Add traditional telephone service, and subscribers can get high-speed DSL and phone service for as little as $45 a month versus $65 a month.
AT&T has also upped the ante with a new promotion that guarantees customers its current pricing, which ranges from $20 to $55, for two years, the Wall Street Journal reported Tuesday.
The promotions come as broadband operators saw a sharp decline in new subscriber growth in the second quarter of 2008. Twenty of the largest cable operators and phone companies in the U.S. only signed up about 887,000 new subscribers during the quarter, the lowest level of growth seen in the past seven years, according to Leichtman Research Group.
Phone companies appeared to be the hardest hit by the slowdown, only adding about 23 percent of the customers they added during the same quarter a year ago. Specifically, Verizon lost 133,000 DSL subscriptions in the second quarter as its existing customers upgraded to its Fios network and new broadband users went to cable competitors.
Meanwhile, cable companies, such as Comcast and Time Warner Cable, have fared much better. In total, cable companies added about 75 percent of all new customers in the second quarter.
Comcast, the largest cable operator in the U.S., added 278,000 high-speed Internet subscribers during the second quarter. Comcast executives have said that about two-thirds of its new broadband customers had switched from DSL. And about one-fifth of these customers are signing up for the triple play bundle.
As a result, cable operators haven't felt compelled to lower prices or offer more for less. But as the broadband market gets tighter, a cable response is likely.
Today about 60 percent of U.S. households already have high-speed Internet connections. And of all people who regularly use the Internet, about 90 percent of them already subscribe to broadband service as opposed to dial-up. This means that there is a smaller pool of people using dial-up who may switch to broadband services, a fact that is also likely impacting growth in the broadband market.
Comcast is already starting to see its edge weakening. During the second quarter, the cable operator added about 18 percent fewer customers during the quarter than it did a year ago.
It will be interesting to see what kind of affect the phone companies' new pricing terms will have on the market in the third quarter. Stay tuned.
This broadband war could lead to some good deals for consumers. But bargain shopping consumers will have to read the fine print on these deals. Pesky service contracts with early termination fees that are common in the wireless industry could show up more regularly in the broadband market. Verizon's six-month free DSL promotion requires a one-year commitment. And the company is charging a $79 fee for people who cancel the service early.
eBay will reduce the fees it charges to sellers to list fixed-price items, the online auctioneer is set to announce Wednesday.
The move, which will take effect September 16, is intended to help eBay compete better with online retail rivals such as Amazon.com, as well as reduce its dependency on auctions.
Under the new pricing plan, sellers who offer fixed-price items in eBay's "Buy It Now" format will pay only 35 cents to list an item for 30 days, a 70 percent reduction in upfront fees. The online auctioneer is also expected to announce that most customers will no longer be allowed to pay by check or cash--only a credit card or eBay's PayPal payment service will be accepted to complete transactions, according to an article in The New York Times.
eBay also plans to launch a revamped search engine to give buyers looking for a specific item options to buy at a fixed price or via auction, according to a Reuters story.
"I'd say this is the most fundamental change we've made, ever, to the marketplace," Lorrie Norrington, president of eBay marketplace operations, told Reuters. "It's a huge shift from where we've been."
San Jose, Calif.-based eBay reported in July that second-quarter net earnings grew to $460.3 million, or 35 cents a share, up from $375.8 million a year ago. But the boost came largely from sales growth in the company's PayPal division; transactions at eBay's Marketplace grew only 8 percent, compared with double-digit growth in previous quarters.
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