I was listening to a podcasts from This Week in Start Ups (TWIST) from Jason Calacanis. It was the first time I’d listened to one of his podcasts and probably won’t be the last. Don’t get me wrong it wasn’t revolutionary but it was thought provoking.
One of the thoughts I had was around high prices. Calacanis was ranting about the Kindle DX’s price. He was deploring the fact that at $500, according to Jason they had priced it totally wrong and they should be pricing it at 20 bucks a month with subscriptions and audio books. No I don’t know about you but I would take Bezo’s strategy over Calcanis’ strategy on this one. But Jason did have a point, high pricing can be off putting. But I don’t think Amazon cares, in fact I think Amazon has made a strategic move in setting the price so high.
Think about it, the iPod and iPhone both had really high prices when they kicked off. Apple maximised margins while at the same time getting key early adopters to test out it’s service. The then used the data from usage to figure out how to develop the product. Sure Apple and Amazon could have priced their products significantly higher, but they might not have been able to meet the increased demand. By pricing it high and producing less they maximise the margins. It’s an exact science but one that can be executed well if you have the smarts like Amazon and Apple.
After a while, when you’ve got the kinks out and when you’re ready for mass production and mass market adoption then lower the price, people think they’re getting a deal, and you’ve got a better product.
At a time when there’s a huge debate on making businesses from giving stuff away free, it’s nice to see some tech companies making healthy margins and charging for premium high value goods.
