Digital Presents a Hot Virtual Commodity

Retailers of digital items, like e-books and video, are the fastest-growing category of online sales.  Fueling  this is the growth in e-book sales along with the proliferation of lower-priced readers like Amazon’s (NASDAQ: AMZN) Kindle Fire.

Earlier in December Amazon guided that they were selling more than 1 million Kindles of all shapes and varieties per week.  Their strategy of slashing prices on older models and the introduction of the $199 Fire seems to be working out brilliantly.

The full impact of the strategy may not be felt until after the holiday itself as so many of these tablet sales are presents.  Christmas day has become Amazon’s biggest day for sales of digital material in the past, and it is expected that Sunday should be quite an big day for the online giant.

This is just the latest wrinkle on the old razors and blades model of retail; selling the unit itself at little to no profit  it is the sales of the replacement blades, or in this case the content that makes the device itself worth owning, where the profit can be realized.

In this way the old joke about selling dollars for ninety cents and making profit on volume has been turned on its head.  The growth of the e-book market is not limited to the Kindle, of course, tablets in general from ones using Google’s (NASDAQ: GOOG) Android OS ones to Apple’s (NASDAQ: AAPL)  iPads dovetail with this strategy while exerting greater pricing pressure on the devices themselves across the entire sector.  All of which bodes well for he cash-strapped consumer.

Previous Post »  
Tags: , , , , , , , , , ,
Tom Luongo

About Tom Luongo

Tom Luongo is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

Comments are closed.