Buying a content provider is building up by the way . It’s also a very smart move. I’m actually kind of surprised that Sony haven’t gone to that step for ebooks, but I guess it comes back to them not being willing to spend that amount of money.

> Add in that Sony divisions don’t work well together

That’s actually changing. There’s been a lot of cooperative activity between the movie and console gaming divisions for Blu-ray for instance. There’s a lot of cross-promotion going on there.

Regardless, their ebook front-end is a deliberate strategy to help push their reader hardware, and vice versa, so cross-division cooperation or not is irrelevant. They’re selling some books at a loss because they figure they’ll make it back on not only other books, but also in the long term. All the article tells us is confirmation that Amazon is making things harder for non-publishers to run competitive ebook storefronts. The big publishers don’t want a devaluation of their content and cannibalizing sales of hardcovers, so they’re obviously only offering ebooks of hard cover editions at a price that’s equal too or higher than 9.95.

And last I looked, they *bought* Sony music rather than build it up.

Add in that Sony divisions don’t work well together and you can’t use Sony Music (nee Columbia Records) which is in serious decline as a guide to what Sony can do in ebooks. Not if you think Sony has a future in ebooks, rather than reader gadgets.

In the market share game, Sony is a net share donor in pretty much every market they play in.

I think people are doing them a disservice if they claim that they’re small-fry and don’t know what they’re doing. They’re number 2 for sales of reader devices after Amazon, and you don’t get there if you don’t have a strategy that works.

There are, however, newer and more sophisticated models that produce *retailer* profits under conditions that the simple cost-plus model fails to deliver.

Supermarkets and high-volume deep discounters (like WalMart and, yes, Amazon) use modern computerized inventory tracking to use loss-leader products to draw in customers and then make a profit on the aggregate “basket” that the customer buys. In other words, they don’t *need* to make a profit on every single item in the basket as long as they make a profit on the *total* sale.

Retailers who aren’t sophsticated enough to play this game, properly mixing in loss leaders with high-profit items, end up losing customers because of higher average prices or lose their shirts by under-pricing the wrong items.

In the case of the Amazon bookstore, they *might* just be doing this for two reasons:
1- all reports are that Kindle buyers are heavy book readers who don’t particularly care about DRM and value the convenience of online buying
2- some Kindle books are priced higher than the competing stores; if Amazon were simply tacking on a fixed margin to all their books then the price difference should be the same across the board (assuming the publishers give Amazon competitors the same prices they give Amazon) *or* the publishers are giving different discounts to different retailers and only occasionally charging Amazon more than they charge other ebook retailers. The first case isn’t happening and the second is possible but unlikely. The opposite is more likely, in truth; the publishers simply give Amazon a better price. And then they whine about the low retail price. (Go figure.)

Either way, once you add in Amazons known efficiencies, even cost-plus pricing would still let them undercut the opposition. They are simply better at retailing than anybody this side of WalMart.

Of course, these days a retailer’s pricing algorithms are proprietary and in constant flux so their is no way short of an FTC investigation into Amazon’s accounting “books” to *know* if they are in fact practicing basket-pricing but given the buying habits of current Kindle reader customers, it is quite likely that they are.

Sony, being a hardware manufacturer more than a retailer, is used to the classic cost-plus fixed pricing scheme and probably doesn’t have the data needed to implement basket pricing on an online store. Hence they lost their shirt at it.

Modern retailing is not for the faint of heart or the weak-kneed; it is a business for sharks, not guppies. And Sony is anything but a shark. These days they are more tuna than barracuda.

Sony’s been one of the few hardware suppliers for a long time now, and if that’s all they were, they wouldn’t have been able to sell hardly any devices.

I disagree: Sony didn’t make music or run radio or TV stations, but they sure made enough on radios, Walkmans and Trinitrons. There are plenty of hardware companies that make plenty of good money selling hardware, even though they don’t create or sell the things that the hardware plays. There’s no reason Sony couldn’t have continued to do this.

In contrast, how many corporations have done well creating content, then selling a proprietary device to play that content (and no one else’s)? Even Sony’s movies can play in any movie theatre… it is not tied to a Sony-exclusive chain.

Frode, you suggest that Sony had to “create” an e-book market. Not at all: There were already numerous e-book suppliers out there, and lots of e-books… had been for most of a decade by then. All Sony had to do was supply a reader that would work well with those, and be a better product than the small-company readers out there… just as it had with the music market… and it would have been fine.

Sony may have boxed itself into a corner by creating a bookstore running a proprietary format. But they can still recover by continuing to produce multi-format-compatible devices, and eventually locking down the bookstore to new material and releasing (de-DRM’ing) any accumulated content to the consumers so they can move to other devices and pursue the content they want from any source.

Whoa there – lets not forget history here. Sony’s been one of the few hardware suppliers for a long time now, and if that’s all they were, they wouldn’t have been able to sell hardly any devices. If you compare it to games consoles, you need a decent sized games library for a console to sell. The same thing goes for ebooks and ebook readers. Sony had to effectively _create_ an ebook market, as there were no big suppliers around at the time when they started out. As competition has mounted, having ready access to a decent sized library of ebooks is a very big plus point for buyers, who don’t want to search through multiple sites to find what they want.

As the ebook market matures, I think we’ll see Sony moving away from that model however, and most likely sell off their ebook store. They may even ditch the readers entirely and just make vaio like tablets once the multi-function device market takes off.

1. author sets a price for his book. $X

2. publisher adds their costs (which would be minimal for ebooks, presumably, since there is no printing costs) plus a profit margin. $X+Y

3. retailer adds their profit margin. $X+Y+Z

4. customer buys for $X+Y+Z

Every retailer is sold the book at the same price. The competitive advantage of a retailer is how low they can make their profit margin and still remain in business–a testament to their efficiency. I think that’s the basic way it’s supposed to work, though I know that today’s screwy, backward economics doesn’t work that way.

if electronic publishing really is that expensive, it’s time publishers downsized and improved their agility — just like the rest of the world is having to do.

But that’s what happens when you decide to morph from a hardware-only company to a media-and-hardware company…

Fact is, most publishers still believe that an ebook sale is a lost hardcover sale, despite all the evidence to the contrary, and they’re still married to the hardcover-then-paperback model – even though most publishers kicked like the Dickens against paperbacks for they same reasons they’re now kicking against ebooks.

They’re dinosaurs. They have to change or die. Sony’s caught in the middle. Let’s hope that the retailers – Amazon, Sony, Books on Board, and others – can manage enough clout to finally change things.

Or look at it another way: Apple will sell me ~ 2GB of content (i.e., a 720p episode of a current TV show) for $3. If Apple can be profitable at that price point, why can’t the publishing industry make a living by selling for 66x as much per byte?