By Farhad Manjoo
A couple months ago, realizing it would be futile to hold out any longer against the tsunami of pop cultural peer pressure, I decided to go ahead and read The Hunger Games. I jumped over to Amazon, searched for the Kindle edition, and I was presented, as usual, with a page infested with ugly strikethroughs. This is Amazon’s way: Jeff Bezos will never just show what you’re going to pay when you buy something from his site. He also wants to make sure you know what you’re not paying. When you buy The Hunger Games for your Kindle, you won’t pay $14.99, the publisher’s suggested digital price. You also won’t pay $8.99, the publisher’s suggested price for the paperback—which happens to be what Barnes & Noble will charge you a Nook version of The Hunger Games.
What will you pay? Either $5 or, surprisingly, $0. The zero price is one of Bezos’ newer pricing tricks. You see it pop up all over the Kindle Store and Amazon Instant Video. Not only does Bezos want to make sure you know what you’re not paying, he also wants you to see what you could be paying. For books, the free deal is part of the Kindle Owner’s Lending Library, a plan that Amazon unveiled last September to criticism from the publishing industry. If you own a Kindle device and if you subscribe to Amazon’s $79-a-year Prime plan, you can get The Hunger Games and thousands of other books for no money at all. The company did not receive permission from many authors and publishers to include their books in the program; instead, when you get a “free” book under the lending program, Amazon simply pays the publisher for the book on your behalf.
This can be pretty confusing for readers—I’m a Prime member and I own a Kindle, but I wanted to read this book on my iPad, so when I went to click Buy, I really wasn’t sure what I was paying. (I think I paid $5).
But there’s something even more perplexing about Amazon selling The Hunger Games and other huge bestsellers for free. The Kindle lending program upends the conventional wisdom about Bezos’ business goals for e-readers. Most people think that Amazon is selling Kindle devices at cost in order to make a profit on the sales of books and movies. But if Amazon is also giving away a lot of media for free—4 of the Top 10 books in the Kindle Store can be had for free under the Kindle lending program—then what is its business model for Kindle?
Giving away the razor to make money on the blades is a well-known strategy. But giving away the razor and the blades in order to make money on a subscription loyalty program as a way to sell everything else? Is that Amazon’s real goal with the Kindle—is Amazon in the device business only to sell Prime subscriptions, which the company sees as a key accelerant for sales across the rest of its site? And if that’s the case, how well is that circuitous business model working out? Is the Kindle helping to sell Prime? And are those Kindle-fueled Prime subscriptions moving more sales across the rest of the company’s inventory?
Read the rest here.