I came across this very interesting editorial on Engadget, the author argued that Google and Amazon strategy of selling tablet computers at cost or in some cases – a lost, could turn out to be bad for consumers in the long run.
From the post:
[quote] You can see what problems this might create in the long term. The strategy effectively skips a whole cycle of traditional price drops as manufacturing gets more efficient, but trains a legion of customers to think that such a jump in value is completely normal and sustainable by most of the industry. It’s not, and you can see the arbitrariness through the pricing for devices that were launched just a few months ago. Imagine how Samsung feels when the Nexus 10 it makes is superior to the Galaxy Note 10.1 in some ways, but has to cost $100 less. If it weren’t for the Nexus 10’s currently non-existent retail presence, Samsung would have trouble justifying the Note 10.1’s otherwise very competitive $499 price. Yes, ASUS is making a tidy income alongside its Google deal, but the fact that it’s shipping a million Nexus 7 tablets a month leaves little doubt that higher-end (and higher-margin) tablets like the Transformer Pad Infinity are being overshadowed. Competition in mobile is difficult enough when most top-tier buyers automatically pick a Galaxy S III or iPad. It’s tougher still when many of the remaining people demand that companies sell at prices they can’t realistically offer.[/quote]
Of course, the majority of the comments on the post thought the post was nonsense. They believe this is the price of capitalism and things will even itself out eventually.
The reality here is that in a few years Apple, Google and Amazon will be dominating the mobile devices market. Samsung may also have a part to play here, if they settle for very thin margins on their products.
Another point from the comments section is that Apple will be the hardest hit by the pricing strategy deployed by Google and Amazon.
This is true to some extend, however Apple also has the resources to compete with these companies. Apple can reduce the price of their content and services or even provide them for free in order to ship their hardware. Google and Amazon would not like this.
This is another interesting article on what Amazon’s strategy.
The author posits:
[quote] If a large retailer announced a loss of a few hundred million dollars in quarter three, about half related to its core retail business and about half related to its investment in a high-tech startup the culprit would be obvious—competition from Amazon. And if a tablet manufacturer announced a loss in quarter three, the culprit would again be obvious—competition from Amazon. Except the company in question is Amazon itself which beneath a press release of “Amazon.com Announces Third Quarter Sales up 27% to $13.81” said it lost $274 million about half of it related to Living Social.[/quote]