Kindle Fire HD, Kindle Paperwhite Hardware Generate No Profit for Amazon
October 12, 2012 9:01 AM
comment(s) - last by
No Profit for you! Profits come with content sales not hardware at Amazon.
A lot of technology products and gadgets are sold at breakeven and at times even at a slight loss in order to make money off accessories or services the go along with the products. This is the case with the new
Amazon Kindle Fire HD
and Paperwhite devices.
"We sell the hardware at our cost, so it is break-even on the hardware," chief executive Jeff Bezos told the
Bezos notes that Amazon's plan for making money off digital content rather than the devices themselves has worked so far. Bezos says that the user tends to consume more digital media once they own a Kindle or a Fire tablet.
"What we find is that when people buy a Kindle they read four times as much as they did before they bought the Kindle."
"But they don't stop buying paper books. Kindle owners read four times as much, but they continue to buy both types of books."
Along with these new gadgets, Amazon has also recently announced the roll out its book lending platform in Europe. Users of Kindle devices in the UK, Germany, and France can now access the Kindle Owners Leaning Library.
This library allows users to borrow up to one book per month from a selection of titles, some of them very popular titles, at no cost. At launch, the UK service will feature over 200,000 digital books.
Amazon is launching the Fire HD tablet and the Paperwhite eReader in Europe on October 25.
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Not sure how well that model works
10/12/2012 1:41:32 PM
But they all do it, including Apple. They may be breaking even now, but I'm sure they make money by the end of the life cycle. Remember, he's telling potential customers "you're getting an amazing deal!", anyone that has bought a car knows there is always more to the story than that.
RE: Not sure how well that model works
10/13/2012 5:45:22 PM
Apple does it. Their profit margins on hardware would make even a Saudi oil sheik smile. The appstore is icing on their profit cake. :P
RE: Not sure how well that model works
10/13/2012 11:28:40 PM
Apple makes money on hardware, not media. Profit on media isn't there for anyone, Apple included. Everyone pays similar wholesale rates for media and has similar profit splitting with publishers for software. iTunes and the App Store generate less money for Apple than anything else in their portfolio.
Amazon's goal isn't to make money on the hardware, even as the hardware cycle continues since they'll just update to more expensive hardware and continue to drop the price, thus resetting the cycle.
Their goal is the same as other big box retailers, which is to get more customers at razor thin profit margins. It is nothing like the profit margins sought by techs Microsoft, Apple, IBM, Google, etc.
They'll sell media for very little, but more importantly most Kindles are now portable digital billboards for other products that Amazon sells. Why should Amazon limit their advertising to the web and email, now they can do it on your tablet or e-reader as well. If Amazon ever makes a phone, look forward to inexpensive devices that serve ads on the lock screen.
"Paying an extra $500 for a computer in this environment -- same piece of hardware -- paying $500 more to get a logo on it? I think that's a more challenging proposition for the average person than it used to be." -- Steve Ballmer
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