How Apple Can Take on Amazon and Instantly Crush Them
Amazon recently released the Kindle Fire HD and some other tablets in an effort to take on Apple. Their strategy? Sell devices at or below cost and make it up in media sales (tv, books, movies, music, apps) sold on the device. A good strategy that hits apple on the pricing side of the hardware. Will Amazon take share if Apple does not either play the pricing game or get more aggressive? Likely yes.
So how does Apple combat this and potentially stop Amazon in their tracks? First Apple is making an ipad mini at a lower price point. The base model is likely to clock in around $249 to $299. We may know more today or in a month or so the exact details on the iPad Mini.
The Apple iPad mini is a good start but if Apple really wants to thrust the dagger into Amazon for the final death blow I suggest the following. Sell the media at or below cost. Yes price music, tv shows, movies and books at or below cost. Blow Amazon out of the water and suck the air out of their pricing model in one simple move. Apple gets an absolutely miniscule amount of profit from media sales so this would be a mere rounding error for them.
The result of doing this and informing the public that on the Apple Store you can buy any media for less money than on Amazon using an Apple device. Apple can educate consumers how much money this saves them over the life of the device. For Apple they make their margins on the devices which is where 90% plus of their revenue and profit come from. In this case the device is the blade and the media is the razor. Amazon would be DOA if Apple did this.
Any loss in profit Apple would recognize from selling at or below cost would be more than compensated by increased device sales. There would be fewer new or existing buyers jumping the Apple ship to go to Amazon’s platform. Same goes for all Google Android devices. Apple’s strengh, profits and margins all lay deep within their hardware sales. Media is merely the glue with sales that amount to little RELATIVE to the hardware business.
So listen up Tim Cook! Maybe this message finds its way to your inbox. This is a move that needs to be made BEFORE Amazon gets any kind of stronghold on the consumer. Switching tends to be a high hurdle for people whether it be users entrenched with Amazon, Google or Apple. The path of least resistance is to make sure you are the first tablet or phone they buy than hold onto them for life. Competitive threats are real now on both phone and tablet. Early on it was Apple’s show but now things have changed. It is Apple’s to lose. Tim Cook needs to make big, bold moves like this to crush his competition NOW before they get momentum in their user base.