A business model I’m sorry we’ll never see

We’re all intimately familiar with the cell phone business model. Buy the phone today at a reduced price that’s subsidized by what’s typically a two-year commitment with that carrier. Other options have emerged in the cell phone arena but this low-price-plus-lock-in model remains extremely popular.

There was a time when I thought we’d see the same model applied to e-readers and tablets. I wasn’t the only one speculating that eventually the Kindle’s price would go to zero for consumers willing to commit to purchasing some minimum level of content over a period of time. One example is this sort of offer: “Get a free Kindle when you agree to purchase at least 15 ebooks over the next two years.” The same model can work with any digital content, of course, not just ebooks. So newspapers, magazines and music could have been used to attract consumers.

That never happened and I’m not optimistic it ever will now. Why? Because Amazon doesn’t need this option to grow their business. Amazon is now so powerful it not only influences but also determines the business models for everyone in the ecosystem including publishers and other retailers.

A few years ago it would have made sense for another retailer to try and gain some momentum with a free device that’s subsidized by a content purchase commitment. Fence-sitting consumers might have been more inclined to acquire a free e-reader or tablet even if it meant committing to future content purchases. The ebook retailer market share numbers we see today might be somewhat different if someone not named Amazon would have tested this model a few years ago.

So why is it too late for another retailer to give it a shot? First of all, it would now come across as a Hail Mary, a futile, last-ditch effort to remain relevant.

Second, I don’t think consumers would respond as well as they might have before Amazon added so many elements to Prime membership. Prime not only means free two-day shipping these days. It’s also an alternative to Netflix and Spotify, for example. And even though Amazon’s video and music catalogs aren’t as broad as Netflix or Spotify, most consumers perceive those services as throw-ins to the free two-day shipping that’s still the heart of Prime.

Third, and perhaps more importantly, I think other retailers now know that any model they offer will quickly be copied and likely squashed by Amazon. That may have always been the case but it feels like there’s no less room for retailers to innovate and compete than ever before. Besides, Amazon is (and should be) more focused on making Prime as broad and irresistible as possible and less interested in the more limited goal of free devices to secure future content purchase commitments. Even though Amazon started with books they’re now making more money from people like me because I’m ordering so many other things. They don’t want to be the next Barnes & Noble when they’re on their way to becoming the next Walmart instead.

Comments

[Michael W. Perry]

No, that 'but you must buy' model never made sense. Amazon would have had to nag and wave a stick over some people to get them to buy enough ebooks. That would not have looked good.

What made more sense, and still makes sense, is a reader that comes with a cell-phone like contract for an ebook subscription service. You get the reader free if you keep your subscription up for some period of time.

As with cell phones, that would keep users locked in.