I can't help but see this as Amazon using the billion songs as a loss-leader to generate interest in its store. Granted, in this case, it's clear that Pepsi is helping out, but anyway you cut it, it's the same principle. Pepsi gets advertising out of the deal, so it's at least reasonable from that perspective, but Amazon has to be taking some of the hit as well.
A number of big-box stores will take a hit on DVD sales to get customers in the door and in the mood to spend. This seems to work pretty well for retailers.
But I can't, off the top of my head, think of any instance where taking losses on a product to boost market-share has been particularly successful at generating repeat business in that product-arena after you jack up the prices and begin turning a profit. It seems just the opposite. Consumers turn elsewhere.
I don't have numbers to back this up, but my general impression is that loss-leaders only work when one product's losses subsidize a different product's sales. And perhaps that's Amazon's angle: "Shop at Amazon; get a free song; buy something else while you're here."
That might be a great promotional idea, but in the long run for a music store, I don't see it working.
Here's a bad analogy:
A lot of bars in the D/FW area will have big opening parties. They advertise free booze every Tuesday for a month or something. They get slammed every Tuesday for a month, report a huge volume of "business", and that, generally speaking, the grand opening gala was a smashing (or is that smashed?) success.
The problem is that after a month, they've lost a huge amount of money. Now they have to start charging. I don't go to these places after the free booze dries up, for a couple of reasons:
1. You pay the "New! Chic! Happening-Place! Tax." Drinks are pricier than other places that have been around longer.
2. I can't stand "New! Chic! Happening-People!"
As far as the (lack of) DRM incentive goes, I think a couple things can be briefly pointed out in gross generalizations:
1. The vast majority of consumers don't mind Apple's DRM. Either they don't run into the limitation very often, or they don't care about them. If they did, iTunes wouldn't be successful.
2. An even greater majority of consumers fail to make their purchase decisions on "Principle." If they did, retailers like Wal-Mart wouldn't be in business.
The idea of what the consumer wants vs. what a retailer is offering is hugely complex, and I won't attempt to address it all now. Just boiling the idea down to its barest concept marks this as a losing proposition for Amazon and the companies that partner with it to distribute music.
A number of big-box stores will take a hit on DVD sales to get customers in the door and in the mood to spend. This seems to work pretty well for retailers.
But I can't, off the top of my head, think of any instance where taking losses on a product to boost market-share has been particularly successful at generating repeat business in that product-arena after you jack up the prices and begin turning a profit. It seems just the opposite. Consumers turn elsewhere.
I don't have numbers to back this up, but my general impression is that loss-leaders only work when one product's losses subsidize a different product's sales. And perhaps that's Amazon's angle: "Shop at Amazon; get a free song; buy something else while you're here."
That might be a great promotional idea, but in the long run for a music store, I don't see it working.
Here's a bad analogy:
A lot of bars in the D/FW area will have big opening parties. They advertise free booze every Tuesday for a month or something. They get slammed every Tuesday for a month, report a huge volume of "business", and that, generally speaking, the grand opening gala was a smashing (or is that smashed?) success.
The problem is that after a month, they've lost a huge amount of money. Now they have to start charging. I don't go to these places after the free booze dries up, for a couple of reasons:
1. You pay the "New! Chic! Happening-Place! Tax." Drinks are pricier than other places that have been around longer.
2. I can't stand "New! Chic! Happening-People!"
As far as the (lack of) DRM incentive goes, I think a couple things can be briefly pointed out in gross generalizations:
1. The vast majority of consumers don't mind Apple's DRM. Either they don't run into the limitation very often, or they don't care about them. If they did, iTunes wouldn't be successful.
2. An even greater majority of consumers fail to make their purchase decisions on "Principle." If they did, retailers like Wal-Mart wouldn't be in business.
The idea of what the consumer wants vs. what a retailer is offering is hugely complex, and I won't attempt to address it all now. Just boiling the idea down to its barest concept marks this as a losing proposition for Amazon and the companies that partner with it to distribute music.
