Amazon is apparently sick of getting clobbered by Apple's iTunes in digital music sales. The e-commerce giant, which used to be the go-to place for music online, just offered a startling one-day special, selling Lady Gaga's new album at 99 cents a copy.
The album wholesales for around $9, so this meant that Amazon was briefly losing about $8 per sale. Estimates for the album's first-day sales are about 250,000-350,000 copies, so assuming Amazon sold a third of those copies, it might have lost $800,000 on the promotion.
After the one-day sale, moreover, Amazon began selling the album for $6.99, which means it's still losing money on every sale. This is in contrast to Apple, which is selling the basic album and an expanded version for much higher prices.
So, what's Amazon up to?
It is presumably trying to raise awareness for its own music downloading store, using the Lady Gaga promotion as a loss-leader to get folks in the door.
This is a typical move: Retailers often offer "loss-leaders" designed to get customers in the store, and they view the losses on these products as a marketing expense. Amazon has never done much traditional marketing, via radio, television, and print. Instead, it has put its marketing budget into lower prices and promotions like this. And this strategy has obviously been successful.
Will the Lady Gaga sale dent Apple's estimated 90% share of music downloads?
It will probably provide Amazon with at least a short-term boost. Over the long haul, however, unless Amazon continues to offer such deals, customers will likely stick with their habits (which, right now, means mostly iTunes).
Given that Apple is threatening to take a big bite out of digital sales of not only music but also video and books, however, Amazon will likely stay aggressive. Apple has taken aim at a core part of Amazon's business--media sales--and Amazon can't just sit back and do nothing as Apple runs away with the game.