sakanagai (sakanagai) wrote,

Amazon's $3 million gamble

A major news outlet learned that a recent Amazon stunt may have cost the online retailer upwards of $3 million. The ploy in question was a sale on the MP3 download of Lady Gaga's new album on its launch day, and again two days later, allowing customers to purchase it for just 99-cents. Over 440K sales were made with $8-9 in licensing fees per download owed to the record label. The news anchors had a good laugh and poked fun at Amazon for being unable to perform simple math. Coworkers also listening in also laughed. As did I, but I was laughing at the moron on TV. The sale was utterly brilliant.

You can say a lot of things about Lady Gaga and her music, but it sells. Amazon isn't stupid. They knew this and probably set aside several million dollars just for this stunt. The encore appearance of the sale supports this theory. They didn't come close to burning through that reserve and opened it again. If they were concerned about losing money, there is absolutely no way they would have offered the sale a second time.

The question then is why Amazon would take such a loss. It's all about the cloud. Amazon has been a major player competitor to iTunes for some time and has been struggling to tear market share away from the media giant. They went DRM-free first, offer a free MP3 each day, and recently started offering certain tracks for 69-cents. The discounted music wasn't like the obscure, lesser-liked budget songs on iTunes, but bestsellers and chart-toppers. Still, Amazon MP3 plays second fiddle. The newest and perhaps most important addition to Amazon's strategies is Cloud Player.

Cloud Drive is the name Amazon gave their online storage service. Any music stored in that space can be streamed over WiFi or cellular data via Cloud Player, included in an update to Amazon MP3 apps on Android and, more recently, iOS. Every member get 5GB of space for free with additional available for purchase on a yearly basis. At least for the time being, Amazon is including a free upgrade to 20GB with the purchase of any digital album from their store. On top of that, any MP3 purchases are automatically added to your Cloud Drive and don't count against your usage.

"Born This Way" qualified and Amazon made it quite clear that the discounted purchase included both perks. Amazon spent $3 million on a two-day advertising campaign for their cloud services. With such a high saturation of smartphone users (with Android and iPhones being the top sellers) and no additional investment needed to take advantage of Cloud Player, every sale provided one more person likely to try it out. With music being roughly the same price as other e-tailers, the free streaming included with each purchase presents a great value, one that Apple currently cannot match.

Apple is almost certainly ready to launch or at least announce their competing service, iCloud, next week. Rumors are all we have, but it will most certainly have a few disadvantages compared to Cloud Drive. First is the cost. Rumors seem to agree that iCloud won't be free, at least not for long. It is also suggested (believably) that the only music eligible for streaming is that bought on iTunes; you won't be able to upload rips from CDs or MP3s purchased elsewhere, although there may be some workaround for subscribers to their $99/year MobileMe. Lastly, Apple doesn't like cross-platform support and there is virtually no chance that Android users will be able to utilize their streaming service. Google, too, is entering the streaming game, but their approach is a bit different. They, like Amazon, allow uploads of personal music (up to 20,000 songs) and stream to Android devices and web browsers. Like iCloud, the service will eventually require a paid subscription (the beta is currently free). It stands alone in that it doesn't have a music store attached to it.

Compared to the competition, Amazon's lone failing is the lack of record label support, but that hasn't stopped it so far. Other than that, Cloud Player and Cloud Drive are certainly worth advertising. For those who do end up using them, the free streaming, both in cost and storage, may be enough to warrant additional Amazon MP3 purchases over iTunes and physical media. Time will tell whether or not the promotion worked in this regard, but, if nothing else, it gave over 440,000 a very good reason to try it out.

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