Retail or Ecosystem Competition? Amazon Cuts Roku 2 Prices

March 26, 2012
Roku 2 XS Price Drop at Amazon

Roku 2 XS Price Drop at Amazon


The Roku 2 XS has had its price cut two days in a row at Amazon. Yesterday, it was selling for $89 and today it’s selling for $79 at Amazon (note, it’s back to $89, see update). Best Buy advertised a price drop in Sunday’s circular to $89 as well. Walmart, the home of low prices, now sells the next model down, the XD for $69. Amazon is selling that model for $71.

I checked with Roku and there’s no new model on the horizon to replace the 2 XS. The only hardware refresh on the horizon is the refresh of the Roku HD model which is currently limited to 720P. This is not an effort to clear out the existing inventory. Furthermore, Roku has not changed its suggested retail pricing on the box. It still costs $99 to purchase the Roku 2 XS directly from Roku. Perhaps it’s just some good ol’ fashioned competition between retailers? Perhaps not. A $20 price drop on a $99 product is a serious margin hit for Amazon. What’s Amazon thinking?

This begs the question, “What’s changed?” Well, the 3rd generation Apple TV was just launched. Along with the new iPad, it’s offers some significant enhancements to the Apple ecosystem. Apple now offers 1080P TV shows and movies, streaming movies from iCloud as well as the streaming of iTunes digital copies. The upgrade to 1080P streaming differentiates it from Amazon Instant Video which is limited to 720P. I believe this price drop is about competing ecosystems instead of selling more Rokus than Walmart or Best Buy. It’s about selling more movies and TV shows through Amazon Instant Video versus iTunes (and books too) Amazon hopes you will decide to watch Mad Men via Amazon Instant Video instead of iTunes. Since it’s unlikely that consumers will buy two streaming boxes for the living room, whatever box they purchase decides which video streaming service they will use for a la carte TV shows and movie rentals and purchases.

The Roku is Amazon’s representative in the living room. Recently, the last two times Amazon has completed significant content deals for its Prime video streaming service, it has featured the Roku. While Amazon touts there are hundreds of devices that let you watch Amazon Instant Video in the living room, it has singled out the Roku. The only other device it names is its own Kindle Fire tablet. Finally, from my own testing, the Roku offers the best Amazon Instant Video experience in the living room of any device on the market today.

Amazon, which also sells the new Apple TV, is aware of how well it’s selling. Despite a longer lead time (1 to 3 weeks) than Apple on-line, the new Apple TV is already one of Amazon’s best sellers. Actually, to be more precise:

Amazon TV and Video Top Sellers

Amazon TV and Video Top Sellers 3/29/2012


Apple TV top new seller at Amazon

From Amazon’s point of view, it’s better to sacrifice some margin now and have the opportunity to make it up later with TV and movie rentals and purchases. It’s the strategy Amazon has adopted with the Kindle Fire tablet. Why not use the same strategy for the living room?

Update: This is Amazon’s deal of the day so the price will probably go back to $89 tomorrow. Regardless, I still think this is more about ecosystem competition.

Tags: Amazon, Amazon Instant, Apple, Apple TV, iTunes, Roku

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