Last Monday, Amazon decided to give away Lady Gaga's new album, Born This Way for just 99 cents. The sale was so popular it brought the site down, and so the site repeated the same promotion on Thursday. That's all well and good for cheapskate Gaga fans, but it reportedly ended up costing Amazon about $3.18 million to run the promotion.
Billboard has a full breakdown of the numbers, but it can be summed up pretty easily: Amazon sold 430,000 copies and lost about $7.40 on each one, thus equaling around $3.18 million. One thing of note, Amazon is probably still losing money based on Billboards calculations, as the record is currently listed at $6.99.
While that's a heck of loss to take, the promotion is actually working magic on a number of different fronts: First off, Born This Way is projected to come in somewhere in the vicinity of 1.15 million first week sales, and it has already topped the charts in the UK with 215,000 units.
It wasn't just about Gaga though -- it was Amazon picking one big release to supplement the cost, so they could get news about their new Cloud Player into the hands and minds of 430,000 people. This certainly isn't the first time we've seen Amazon bite the bullet to get new customers; the site offered similar deals for Kanye West and Arcade Fire last year. And those were just to get people into the groove of buying MP3s from Amazon. This is something a whole lot bigger.
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The reason is simple: There is a Yukon-style gold rush for cloud music storage right now, and whoever gets their pick in the rock first wins. Amazon had the first strike with its Cloud Player, which allows users to store their MP3s on its servers so they can be accessed anywhere, but Google's Music Beta just launched as an invite only program and Apple is introducing its iCloud on June 6. Basically there are about to three different carts in the gold mine.
They all, at least on the surface and based on the rumors, are exactly the same, with the same limited functionality and storage models. But it's not so much about which one works the best, it's about which one gets adapted by more people first. As we saw with the iPod and iTunes, it's certainly not about functionality, so much as it is about carpeting the market.
While Amazon might have lost $3.2 million on paper, it probably introduced at least half of the people behind those 430,000 sales to its MP3 service and, subsequently, its Cloud Player. If people take the 95 or so hours to upload their music to a cloud, chances are they aren't going to be willing to do it a second time. Amazon bet on Gaga to bring in new people, and only time will tell if it was worth it. It most certainly was for Gag, who just walked away with a giant pile of cash for doing absolutely nothing.