Amazon Feels Pressure on Kindle

(MoneyWatch)  After keeping its e-book readers U.S bound, if you'll pardon the pun, Amazon is now going to sell the Kindle internationally and is also dropping the price to $259. But coming after a price drop just three months ago, the moves suggest that the company is feeling pressure from a growing number of competitors, some of which are actually in a better position to grab growing market share and possibly thwart Amazon's plans.

I've argued that Amazon's pricing strategy has been the inverse of a traditional tech approach, with high hardware prices subsidizing low content or service prices, versus having the service price or subscription prop up low hardware prices used to draw in customers. The Kindle has been the anti-razor, or at least the anti-cell phone, so e-book prices can be low with enough money left over to pay publishers higher rates than a straight percentage on unit sales would provide.

So it wouldn't make sense that Amazon would unilaterally drop the price for its reader just to make consumers happy. There has to be pressure, and it's coming in two places. One is the growing number of significant competitors, including consumer electronics giant Sony. The danger facing Amazon is that real growth in e-book reader sales will likely come where Amazon isn't, that being in the normal consumer electronics channels and outside the U.S. So Amazon hopes that the lower price will keep people from defecting to device from Sony and others and that expansion into Europe will help make up for the lack of chain activity.

But that is nowhere near enough. The price of e-book readers is probably going to have to drop below $200, maybe significantly below, for a perception of value that doesn't depend on "cheaper books somewhere down the line," and without distribution that takes how people purchase into account, the unit movement will be unnecessarily limited.