Amazon Confirms It Makes No Profit On Kindles
“We sell the hardware at our cost, so it is break-even on the hardware,” Jeff Bezos, CEO of Amazon, told the BBC.
While the strategy is notably different than Apple‘s, which makes a profit on every iPhone and iPad, Amazon clearly just wants to provide a medium to consumers that can help deliver Amazon’s online content – such as books and video – which have much higher profit margins. By offering consumers a device that costs as little as possible (which consumers will likely only buy once) to then purchase the company’s own online content over and over, Amazon is making a strategic move in both customer acquisition and retention. A Kindle Paperwhite may be sold to a consumer for no profit by Amazon, but all the content that consumer will buy thereafter will undoubtedly make up for the difference – especially since Kindle consumers typically start reading more after buying one.
“What we find is that when people buy a Kindle they read four times as much as they did before they bought the Kindle,” said Bezos in the interview with the BBC. “But they don’t stop buying paper books. Kindle owners read four times as much, but they continue to buy both types of books.”
This strategy has worked well for other types of devices that deliver content – such as gaming consoles – but it will be interesting to see whether consumers ultimately prefer a high up-front cost for a tablet that offers a plethora of free content (such as the iPad), or the lower cost of the Kindle, while ultimately paying more for it – via the content – in the end.