Price and Value

I am an early-adopter of the Amazon Kindle and must say that I have been thrilled with it, despite a number of design flaws I hope to see fixed in the new version.  Most of my complaints have to do with industrial design, not with the feature set  (from an industrial design scale where iPod=10 and the original MS Vista packaging =0, the Kindle and its case were about a 4.)

I was perusing a number of "reviews" of the Kindle 2 today.  Pre-release reviews can have a really wide spread, as they tend to be populated either by insiders who are trying to promote the product, or by folks who haven't used the product but have some problem with its basic concept (or manufacturer) they want to vent on.  Which makes pre-release reviews worthless.

One such person in the second category is "Bohemian," who seems to want to vent on Kindle because it is not open source, DRM-free, etc.  He is also upset that it does not have built-in solar power, lol.  But the line that really caught my eye is this one:

Overpriced - should be around $100

That is hilarious to me.  The Kindle has been absolutely sold out (at the current price of $300-$400) for months and months.  There is a waiting list, particularly since Oprah recommend it.  So how is the price too high?  My take on it would be the price is too low, since even at $359 demand is exceeding supply.

This is a common mistake by people across the political spectrum -- mistaking one's own personal assessment of value with what a price "should" be.  The correct statement for this review would have been "I would not pay more than $100 for this product."  And in a free society, he doesn't have to buy it.  But obviously there are a lot of people, in fact more people than Amazon can currently satisfy, who think the Kindle is worth at least $359.

By the way, one other note on DRM and proprietary platforms.  I am the last one to spend much time defending DRM, but proprietary platforms are totally normal for new technologies.  The thing that is often ignored about the Kindle is that ... it just works.  You log on, download the books you want, and they are there in seconds and display correctly and reliably.  I lost my first Kindle, and when the second one showed up, all my books from my first Kindle where already on my second.  No crashes, no need for tech support.

People give Microsoft loads of well-deserved cr*p for problems in its software and for playing too many proprietary tricks, but the real reason PC's can be a pain and can be tech support nightmares is because PC's are not very proprietary -- they are really a wide open platform, and try to integrate a hodge podge of components and software from a variety of sources, and sometimes things inevitably go wrong.  People tend to forget that the reason the Mac and the iPod are so compelling in the user-friendliness and stability is that they are proprietary, tightly controlled platforms.

I personally prefer the PC, because I like the flexibility and am not scared off by the occasional integration challenge.  Over time, I have realized that I am in the minority.  Most people want their electronic devices to freaking work, and don't care if they don't have access to the 100-item micro-configuration menu and probably will never have a desire to transfer the book file on their Kindle to be read on the LCD on their refrigerator.

  • ErikTheRed

    I know you're not specifically in the Device Review business, but what do you think about the amount of content that fits on the page, and the speed at which pages turn? I've never actually seen a Kindle in person - just the Sony e-books, wich I found to be unusable at my reading speed. The specs say the new Kindles are "20% faster," but that's hardly a useful reference for most of us.

    I still have concerns with DRM issues, but if the content and speed are up to par it might still be worth a look.

  • Dave

    They could be sold out because they have managed their inventory poorly. That would have nothing to do with the price at which the Kindle is sold or not sold.

  • LoneSnark

    As an engineer, I recognize the complaint that it should cost only $100. Yes, $100 is probably too low, but the current price is way too high. The technology is not that complex and all the pieces are easily fabricated. As such, the evidence I gleam from Amazon selling out at $300+ is that they have done one of two things:
    1. Decided that the current flood of demand is temporary and will therefore not bother installing scaleable production capacity to satisfy it, for fear of being saddled with it later when quantity demanded falls. And on that day, the price charged will fall markedly, perhaps to $100.
    2. Has bungled its production, either through poor design or poor production techniques which are making them artificially expensive to produce and curtailling the supply.

    The only way to tell the two apart is to check the profitability of the company. If it is 1, then Amazon should be ungodly profitable on a per-unit basis. If it is 2, then Amazon might be barely breaking even on its new hit product.

  • http://zoominac.com Matt

    Regarding the difference of price and value, this weekend my girlfriend and I went out to the county fair where these guys were doing helicopter rides for $20. Being somewhat of an aviation enthusiast (and having never riden in a helicopter) I jumped at the chance. My girlfriend thought it wasn't worth the price, as the ride was just a lap around the fairgrounds and only lasted about a minute. To me, it was definitely worth it, and that is the price mechanism at work - some things can have totally different values to different consumers. I countered to her that I would never pay $125 for her Betsey Johnson sunglasses, but she forked it over at Nordstrom's like she was getting the bargain of a lifetime. Cost of production means nothing when determining the retail price of something. A product is only 'worth' as much (or as little) as consumers are willing to pay for it.

  • Doug

    I am often amused by the call for solar panels on products like this, and for two reasons:
    1) they require space --- lots of space. Solar panel power output is quite small, so you need lots of panel area to charge up any reasonably-sized battery. So unless you can read the display while simultaneously pointing the backside to the sun, what good is it? 2) you have to expose it to the sun to charge it. Therefore you can't just put it in the glove compartment of your car when it's not in use. Okay, so you put it on the front seat of the car, or leave it on the table in a cafe, right out there in the open, inviting others to steal it. I.e., such devices are theft magnets.

    Solar on portable consumer products is a REAL bad idea, unless you're a thief.

  • Allen

    My Kindle is finally on the way! Woo-hoo!

    That said, I wouldn't read too much on the delays. My two-bits is that Amazon doesn't want to be in the hardware business. They're just using this as a means to stoke the fires. They'll be happy to step aside when the time comes. But with essentially only Sony in the businesses they need more press to garner attention and sales that will drive mass production. And I think they're onto something in acknowledging that the real beauty of this thing is having instant access to specific sources. I need to be able to grab that new Flex 3 book via my Kindle while I'm bored riding the train in the morning. If I wait until I'm at work, I'm probably not going to order the book but decide to just make do with info on the internet.

  • Jay

    "My take on it would be the price is too low, since even at $359 demand is exceeding supply."

    The obvious answer is that evil corporations purposefully underproduce to keep prices too high for hard work middle class families.

  • http://www.coffeerama.com coffee

    I've dropped my Kindle a few times already (not on purpose of course) and it seems to be working without a hitch; so they're durable at least

  • Bruce Yelen

    As a Kindle owner I agree with everything you mentioned in your blog entry. I'm surprised you didn't mention travel. It is comforting to get on a long flight knowing there is no possibility of running out of reading material!

  • epobirs

    Contrary to what LoneSnark may believe, the Kindle's display is not a trivial COTS item yet and is a big reason for the price. Yields on e-paper production are still lousy and that is a big price factor that Amazon cannot affect with investment to production capacity. The display OEM is either going to master their process for a more effective price or a competitor will win the business.

    I'm anxiously awaiting Plastic Logic's product. I really like the form factor that emulates a hardback and magazines in size but should still be very portable to anyone who has ever traveled with a laptop.

    As for solar panels, I think that is best left as an external accessory to charge any number or variety of devices. For the car, I like thte idea of a fold-up panel that acts as a windshield shade. This hides your car interior and if nothing is in need of charging can instead make sure the car's battery is topped of while exerting a little power to keep the interior cooled. I'd pay good money for that in SoCal summers and imagine it would score pretty high in Arizona as well.

  • jhc

    LoneSnark - As an engineer, I'll agree the price may be too high on a cost-of-materials-and-labor basis. But that's not the What The Market Will Bear point.

    If you think you can sell Kindle's for less than $359 profitably - either by improving the design or with different production techniques - then I think you ought to have at it. I'd buy one.

  • LoneSnark

    As epobirs says, it is option 2. Amazon and its suppliers would love to meet the demand but the technical challenge is more than they can handle at this time. Maybe they will get better and drive down the price to MR, or maybe they will not.

    As for jhc, I am not in that particular field, but I suspect there are limits placed upon me. If the technical challenge exceeds their ability then most likely it will exceed mine, with potentially even worse yields. My assertion was not that they are incompetent, simply that they wish they knew more about their own process. This is, of course, assuming none of the needed techniques or designs are patented.

  • HTRN

    I would like to point out in comparison - Asus is selling Eee1000HDs at 300 bucks, and I imagine they're more costly to produce than Kindle. Keep in mind that at this time, the Kindle is A) only in it's second generation, and demand is relatively small, at least compared to the likes of laptops. Those who are buying now are the so called "early adopters", who's willingness to pay has always paved the way for later, significantly cheaper versions of the same devices. I do think that Kindle will drop significantly in price if Amazon continues to develop it as a product.

  • http://www.matthewjudebrown.com/ Matthew Brown

    HTRN: I wouldn't necessarily bet on that; the E-ink display could still be quite costly, given that they aren't yet in wide use, while everything in the Eee is commodity.

    But yes, we're still in the early-adopter phase of e-books. I would expect, if Amazon's Kindle experiment is a success, that in a couple of years we'll be seeing models for about a hundred bucks.

    The other question is what proportion of Amazon's profits on the enterprise are on the reader vs. the content. I believe I've read that Amazon's margin on the content isn't huge on most titles, because of worry that they'll kill the market if they price too high, so the Kindle isn't following the "cheap, subsidized razor, expensive blades" model of profitability.

  • Michael Stack

    Boy, the point about proprietary systems is so accurate. That is a huge problem with Linux (though Linux has many positive qualities that help compensate). There are so many flavors (or 'distributions') of Linux,and endless ways to customize them, that it is difficult to make assumptions about an end-user's Linux system.

    Package management software helps a lot, but there is a real trade-off between the ability to customize, and the amount of work that must be done by developers/admins to support the many varieties of Linux.