Posts tagged ‘AT&T’

Kindling

Recently, blogger and journalist extraordinaire Dan Gillmor tweeted about how some publisher was selling an e-book at a higher price than the hardcover.  Dan’s comment was that the publisher (Penquin in this case) just “didn’t get it.”

I think Dan’s wrong on this one.

True, an e-book should be priced lower than the hardcover.  It’s certainly cheaper to produce.  But cost doesn’t drive price, demand does.  Cost simply determines how much profit there will be, if any.

People buy e-books (and e-book readers–more on that in a minute) for a lot of reasons.  But most of them are related to convenience.  The ability to download books, a large and growing selection, the ability to carry an entire library with you, low weight, getting a new book the day it debuts without fears it will be sold out.   And yes, they’re almost always cheaper.

Consumers have always been willing to pay for convenience.

If people really like e-books, why wouldn’t they pay more for the convenience?  Now that they’ve shelled out good money for their Kindle (or Nook, or whatever) they’re sort of stuck, aren’t they?  Are they really going to go back to buying hardcovers–and trashing their e-readers–just because the book price went up?

Let me get a show of hands.  How many of you walked back into the bank to use a real teller once they started charging a few bucks to withdraw money from an ATM?  Not many, I bet.  Remember when there were hardly any commercials on cable TV, because you paid a subscriber fee for it?  Did you cut the cord because ads started showing up?  Nope.

Publishers aren’t stupid.  They’re going to charge as much as the market will bear for an e-book.  But they have to be deliberate in how they go about it.  For this to work they need two things:

  1. Enough separate e-book outlets so they maintain a measure of pricing control (no iBook store to monopolize distribution), and
  2. Enough e-book readers on the market so they have a critical mass of customers.

It’ll happen gradually, but e-book prices will drift up.  They may never exceed hardcover prices–perhaps they’ll end up somewhere between that point and retail paperbacks.  Whatever the level, it’s clear publishers will be raising prices on more titles in the future–particularly popular authors and hot books.

Which brings me to my second point.  If publishers and sellers require lots of e-book devices in the market to maximize profits from e-book sales, what do you think will happen to the price of e-readers?

If you answered “they’ll drop like a stone”, go to the head of the class.  When you expect to make most of your money from the blades, why in the world would you charge people for razors?

Sure, e-readers might not actually become “free”.  Perhaps they’ll be subsidized like cell phones by the operators whose networks are used to download the e-books.  Sign up for AT&T service (NYSE:T) for 2 years, get a starter cell phone, and we’ll even throw in a Kindle.  Or agree to buy 2 e-books a month from Barnes and Noble (NYSE:BKS) over the next year, and your Nook costs you nothing.

Consider this:

  • The number of available e-readers has grown significantly
  • You can already read e-books on other (multi-purpose) platforms like PCs or tablets
  • Apple (NASDAQ: APPL) has sold more than 8 million iPads already, while Kindle sales are at best less than half that
  • Entry-level e-readers have dropped dramatically in price since they premiered (though new ones with more features still command a premium).

E-reader prices will trend downward to the point where they’ll be as cheap as, well, firewood.   And as that happens, e-book prices start to rise.

This all maximizes publisher profit .  It also increases revenue for distributors like Amazon (NASDAQ: AMZN) and Barnes & Noble who provide the devices.  They will more than make up the cost of e-readers with increased profit on e-book sales.

The real beauty of this strategy is that it effectively takes the cannibalization of physical book sales completely off the table.

Disclosure: I hold no position, either long or short, in any stocks mentioned here.

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March 10, 2011 at 11:55 am 1 comment

iPhone Doesn’t Drive Mobile Usage. But AT&T Might.

According to a recent study by M:Metrics, summarized here, Apple’s (AAPL) iPhone is having a dramatic effect on mobile web usage.

Per senior analyst Mark Donovan: “Beyond a doubt, this device is compelling consumers to interact with the mobile Web, delivering off-the-charts usage from everything to text messaging to mobile video.”

Hmm.

Even more breathless praise for the iPhone: “This data indicates that the iPhone’s widgets are an effective means to drive mobile content consumption,” observed Donovan.

The numbers seem to back up the claims:

  • 85% of iPhone users accessed news/info via browser, vs. 58% of smartphone users and 13% of all cellphone users
  • [a “staggering”] 31% of iPhone owners watched mobile TV or video (vs. 4.6% market average)
  • 59% used web search vs. 37% of smartphone users and 6% of the general mobile population

This would all be nice if it actually said anything about causality. It doesn’t.

It is equally possible (more than likely, I’d guess), that iPhone users are self-selected for this usage pattern. Call them early adopters, technophiles, whatever. People who use–or would like to use–the web more often are among those most likely to buy an iPhone. There’s no evidence whatsoever in this study that indicates the iPhone itself is driving greater usage. (It may be making it somewhat easier or more elegant for those who are so inclined, however.)

In fact, there’s no data here that indicates mobile web usage has grown at all. For all we know it shrank last year. (Yeah, I know, I don’t believe that one either.)

Sort of like a Dear Abby survey that shows women overwhelmingly believe something (e.g. breastfeeding is best) when all it really shows is that belief is held among people who write to Dear Abby.

Even if you assume the iPhone is a causative factor, consider this: Apple’s U.S. market share is on the order of 1%. Given the size of the U.S. mobile market, there’s no way that’s having a significant impact on mobile internet usage. If we assume 200M U.S. mobile users, M:Metric’s numbers imply 26M accessing the web via browser; iPhone users account for 1.7M of those. It’s difficult to believe most of those 1.7M weren’t using the internet on their old phone.

What would have been interesting is to show the deviation–if any–from the trend in growth that has occurred since the debut of the iPhone.

None of this is to say the iPhone isn’t a great smartphone, or that its sales won’t increase. I’m only throwing cold water on the claim that Apple is singlehandedly driving up mobile internet usage.

I did find one quote interesting, though: “… all iPhones on AT&T (T) are attached to an unlimited data plan. Our data shows that once the fear of surprise data charges is eliminated, mobile content consumption increases dramatically, regardless of device.

Now that I’d believe.

March 19, 2008 at 9:27 am 1 comment


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