Wednesday, July 28, 2010

Amazon: Making Tradeoffs in Razor & Blades Strategy

Today, we learn from the Wall Street Journal that Amazon will be selling its newest Kindle for $189 with 3G and an incredibly low $139 for wi-fi only service. Without a doubt, Amazon is moving to an aggressive razor and blades model, hoping to get Kindles in as many hands as possible, with e-book sales to follow, hopefully in large numbers. What's also interesting is how clearly Amazon has chosen to make a series of trade-offs that distinguish it from the competition, particularly Apple. Here's an excerpt from the article that clearly defines the trade-offs that are at the heart of Amazon's strategy:

Mr. Bezos takes pains to distinguish the Kindle from the iPad, saying the company is committed to making a single-purpose piece of consumer electronics. Mr. Bezos said he intentionally left off some potential whiz-bang features from the new Kindle, like color and touch-screen controls, that would have introduced compromises to the reading experience such as glare. "For the vast majority of books, adding video and animation is not going to be helpful. It is distracting rather than enhancing. You are not going to improve Hemingway by adding video snippets," he said. Underscoring that, Mr. Bezos said he wasn't interested in making an Amazon tablet computer. "There are going to be 100 companies making LCD [screen] tablets," he said. "Why would we want to be 101? I like building a purpose-built reading device. I think that is where we can make a real contribution."

Talk about the essence of competitive strategy being what you choose NOT to do! Naturally, no one knows who will be the eventual winners in the e-reader/e-book space, but one certainly cannot accuse Amazon of following a me-too strategy, or of exhibiting herd behavior. They are clearly setting their own path, choosing not to do what others are doing. They might not end up being the biggest winner, but they certainly look to be a player with such a distinctive strategy.


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