Perhaps you’ve seen the video of Elizabeth Warren, hoping to be elected to the U.S. Senate from Massachusetts, in which she declaims that since roads and police and fire protection are funded through taxes, people have no real claim to their income or wealth against a government that wants to take it. After all, she says, without use of the roads or protection by the policy, people couldn’t earn income or hold onto their wealth. (By the way, I’m looking forward to part two where she explains the consequences for religious freedom entailed by the fact that church-goers drive to church on tax-funded roads.)
Some people like her way of thinking (see the comments here). But obviously her presentation will grate on the nerves of folks that believe governments are instituted to secure and protect rights rather than the wellspring of those rights in the first place.
There are a number of thoughtful (and probably many more less thoughtful) criticisms of Warren’s little speech. Perhaps the best considered response I’ve seen so far comes from Will Wilkinson at The Moral Sciences Club, “Tax and Justice: It is your money.”
Amazon’s announcement yesterday of their Kindle Fire tablet differentiates the tablet market in one discrete jump. Anticipated for months, the Fire does indeed compete head-to-head with the iPad, but not by mimicking its feature-rich and flexible platform. Amazon has made a strong Schumpeterian move to differentiate the market.
Amazon’s move follows a storied path in economics, the path of razor-razorblade. Gillette will make lots of money selling you razorblades, so it sells you the razor for a song, or even at a loss; the razor thus becomes a platform for selling you complementary razorblades. The fact that Shick razorblades won’t fit your razor due to strict complementarity makes this strategy possible, and profitable. Printers and ink cartridges are another example of complementary products where the firm can price low on the hardware to create the anticipated revenue flow from selling the ink cartridges.
In this instance Amazon is sensibly leveraging its comparative advantage, which is the breadth and depth of its media content, its extensive customer relationships, and its cloud storage services. It can charge a low price of $199 for the Fire (and the new lower-priced Kindle readers) because Amazon profits from your purchase and use of its content. The tablet is no longer a physical device; it is a media platform in a way that differs significantly from the iPad. The Fire is a 7-inch and not 10-inch device, it doesn’t have a camera, and it only has 8GB of storage, which indicates that Amazon expects their customers to use their already-extensive cloud storage services to stream media content rather than downloading it onto the device. In fact, this excellent Bloomberg article on Amazon’s move points out that Jeff Bezos is pitching the Fire as a service, not as a tablet.
Several commenters see in this product differentiation the death knell of the full-featured Android tablet, and predict that the market will bifurcate between the high-priced, feature-rich iPad and the bargain Fire. I’m not convinced; I think it will depend on how many customers (like me) want more features and capability, don’t want to rely so heavily on wi-fi streaming from cloud storage, and aren’t thrilled with Apple’s walled garden approach to digital rights.
Other good analyses of the Fire that touch on the points I raised above are from Erik Brynjolfsson and Joshua Gans at Digitopoly, a new (welcome!) economics blog focusing on the digital economy. Given the overlap in our interests in technology, I will read with great enthusiasm.