Posted by: Rob Hof on February 17, 2006
Much of the blogosphere is in a dither over why Amazon.com is bothering to join the appallingly unprofitable online music business—late, to boot. I don’t doubt that for the long term, Amazon CEO Jeff Bezos recognizes that the company needs to be in digital music. So it has to establish a beachhead.
I also don’t doubt that the record companies aren’t going to let Amazon make any more money than anyone else. And it’s well-known that even market leader Apple is making little or no money on downloads themselves. Nor have subscriptions, which my colleague Cliff Edwards confirms are the heart of Amazon’s music offering, proved to be profitable. And clearly, Amazon’s not going to make money on a subsidized music player.
So here’s what I wonder: Could the music store, at least for now, be just a come-on for everything else Amazon sells—a loss leader not for music hardware, as it is for Apple with its iPod, but for all the other hard goods Amazon sells? In a way, says Eric Garland, CEO of the digital media measurement company BigChampagne, “it’s the same play as Apple. The media becomes a loss leader for physical goods” from TVs to kitchen mixers to Xboxes and all the other nonmedia stuff that a lot of people still don’t know Amazon sells.
Maybe. As a marketing ploy, though, it’s a pretty expensive one, since Amazon has hired a bunch of people for its digital media efforts. Possibly too many. Something doesn’t quite compute here. But Bezos is no fool. It’s a good bet we’ll see some surprises by the time Amazon launches its music offering this summer.