What’s five million times zero?
Back in 2009, Amazon CEO Jeff Bezos made a point about EBRs (E-Book Readers) and e-books being different markets, that they weren’t dependent on each other.
You could buy Kindle e-books without having a Kindle. You could buy a Kindle without using Kindle e-books.
One quote from that article:
“I personally like the cogitative simplicity of saying, ‘Buy the device and use it or don’t use it,’” and have both sides of the business stand alone.
Well, that appears to have changed.
Now, Bezos is fond of saying, “We want to make money when people use our device, not when people buy our devices.”
In the video embedded in this
Jeff Bezos says that Kindles are sold at Amazon’s cost.
If that’s the case, the hardware business isn’t much of a business.
This goes back to what I keep saying about the Kindle Fire being a gateway to Amazon Prime..that they make their money on “diapers and windshield wipers”.
What changed in these three years?
Amazon is famously forward-looking, right? Did they miscalculate on this?
My guess it a there were a couple of somewhat unanticipated factors.
One was that they would get into the tablet market, and have a platform for selling lots of things besides e-books: MP3s, videos, apps, and again, those physical products. The “inspired sales” may have been much more profitable than they thought (not those digital ones, especially), meaning that it made sense to make less on the hardware if it made them more on the content and connected physical sales.
The other one is that it may have proved more difficult to get other formats on to the Kindle than they anticipated.
I think Amazon has been surprised at how recalcitrant some other companies can be…even rejecting things that could help them (or at least, making a deal difficult).
For example, when Amazon invested in licensing text-to-speech software for their Kindles, greatly improving access to the publishers’ books at no cost to the publisher, those content providers raised a stink (along with the Authors Guild), causing Amazon to make the access optional.
When Amazon was creating a massively enlarged e-book market, the publishers adopted the Agency Model, taking power away from Amazon.
I understand that there were things that the publishers feared, but I think these sorts of actions weren’t part of Amazon’s calculations.
By the way, back in 2009, Bezos was really addressing the “razor blade model”. In that idea, Amazon would basically give away Kindles, and commit customers to buying a certain number of e-books. You give away the razor, and charge for the razor blades.
Instead of committing people, Amazon has been relying on enticing people.
Well, if Amazon is already essentially just breaking even on Kindles, you can see why adding more things would be a challenge. If taking (more of?) a loss on each unit doesn’t result in compensating sales of other items, it’s a tough sell to investors. If Amazon sells five million Kindles and loses a dollar on each one, that’s a five million dollar loss. Two dollars? Ten million. Hmm…I wonder what a rear-facing camera costs?
The same question goes for software development of new features…those cost not just in R&D (Research and Development), but in documentation and Customer Service (and the latter can be quite expensive, post-sale).
Amazon is keeping the price down…are they making it up with other sales? That’s what will determine how this goes in the future.
What do you think? Are you surprised that Amazon is apparently selling millions of devices at no profit? Do you think Amazon should lower prices more on the Kindles, and count on those inspired sales? Feel free to let me and my readers know what you think by commenting on this post.
This post by Bufo Calvin originally appeared in the I Love My Kindle blog.