Monday, June 4, 2012

Can Kindle Ad Sales Lower E-Book Prices?

Amazon has turned selling items at a loss into an art form, particularly when it comes to books. But selling in-book advertisements on its Kindle devices just might put the company in an even stronger position with its competitors, according to a blogposted by Joe Wikert.

The retail giant has shown it is more than happy to lose money on the price of bestsellers. However, Kindle advertising could provide Amazon with the additional revenue to take e-book prices even lower.

“Make no mistake about the fact that Amazon would love to see e-book pricing approaching zero,” Wikert wrote, adding that the Kindle Owner’s Lending Library program is already approaching free e-books.

Amazon is already selling advertising on some of the Kindle models, offering those models at very attractive prices to consumers. There are even rumors that Amazon plans to sell ad space on its Kindle Fire’s welcome screen. Wikert adds there’s nothing stopping Amazon from using in-book advertising, while offering ad-free editions at higher prices.

Amazon will keep 100% of the ad revenue it sells on both device and in-book advertising, padding its bottom line and giving the company even more leverage when it comes to negotiating wholesale list price with publishers. Wikert says he believes other e-book retailers will not be able to sustain the losses to effectively compete.

“Why wouldn’t Amazon follow this strategy, especially since it helps eliminate competitors, leads to market dominance, and fixes the loss-leader problem they currently have with many e-book sales?” he asks.

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