Kindle sold ‘at cost’

Amazon Chief Executive Jeff Bezos confirmed on Thursday that the online retailer sells its Kindle e-reader “at cost”, with profit coming instead from sales of online content.

That’s one way to do it I suppose. Or you could just design great products and make money on all of it.

  • Now, now, Jim. Bezos is making money the old-fashioned way. By beating up product suppliers, just like Wal*Mart.

    • tylernol

      Apple generally has no peer when it comes to squeezing electronic component suppliers, but I find it quite interesting that the Kindle Fire HD uses a TI OMAP 4460 SOC (the Kindle Fire uses the 4430), which would seem to be huge design wins for TI, yet TI has announced that they are bailing on OMAP designs for the phone and tablet market. So that must mean TI is breaking even or selling the OMAP’s at a loss and they do not see the situation improving.

      • I’m more interested in suppliers like publishing houses and manufacturers of consumer products for the purpose of this issue. Bezos’ long-term strategy is to beat every other retailer on price, put them out of business, and then reap the rewards of being the sole survivor.

        • tylernol

          totally agree. I just work someplace which has benefited from TI’s Netra and OMAP chips, but just saw that roadmap crater.

      • I was thinking about what TI’s OMAP repositioning meant in the context of the Kindle Fire. There are a lot of possible interpretations.

        One is that TI didn’t win Amazon’s next round of business. Or, they did, but don’t see a long-term future in that market segment. Even if they keep Amazon as a customer, they probably aren’t going to want bleeding edge parts and might be happy ordering off TI’s existing roadmap, since they are more interested in keeping prices down to drive market share and installed base. Beyond that, they have to be wondering if they have a future against Qualcomm, Samsung, and all the Chinese SOCs.

        None of that is particularly revealing about TI’s current mobile devices SoC business, only that they don’t see it being a profitable area for ongoing R&D. Of course, if they were doing well now, they’d probably be more optimistic in their assumptions about the future.

  • now you know why Amazon was so against Apple’s Agency Model….ruins their monopolistic plans of the ebook world….give them the razor for free and JUICE them for the BOOKS…..

  • “Or you could just design great products and make money on all of it.”

    Yeah business is that simple. Design a great product, charge a huge Apple-like premium on it, and watch as piles of cash flow into your bank account.

    • You don’t actually know what Apple’s premiums are. Much lower on mobile devices than laptops or desktops.

    • kibbles

      iphone: $0 ipod: $50 ipad: $399 mac: $599 mabook: $999

      …most of which are industry-leading products in terms of features and build. the apple tax is a myth these days.

  • Luke

    Why would you encourage companies to charge you more money than they have to? If you love Apple so much, there’s always the option of simply donating your money to them 🙂

    • Techpm

      Maybe because we like to reward companies for making great products, so that they can stay around and continue to create them instead of running out of money and being taken over by morons (see Digital, Palm etc after being taken over by HP)

      In other words, voting with your wallet.

      Also for how long can Amazon and Google keep churning out hardware that’s any good at cost price? I doubt content sales will really make up for R&D to make better, more innovative, hardware in the medium term.

      Amazon and Google are not playing for sustainability, they’re playing last man standing to see who drops first and hope they’re the last one remaining.

      • tylernol

        last man standing is happening quite quickly in the ARM SOC market. Take a look at the chip supplier for the Amazon Kindle HD: TI — the OMAP 4460. They gave up on making their OMAP line for tablets and phones because they could not make any money. So Amazon is down to two SOC vendors for their next generation Kindle — Qualcomm or Nvidia. Nvidia is designed into the Nexus 7, and at that price they are probably not making any money either.

        • Don’t forget SoCs from Chinese and Taiwanese ARM licensees: Allwinner, Rockchip, Telechips, AMlogic. Does TI, or similar, add enough value? Power consumption may be one area where they can differentiate themselves, but how much of the power-budget the the SOC account for these days? The backlights in tablet screens seem to be the biggest consumer of power these days.

          Apple didn’t even rev CPU performance for the iPad 3, other than the improvements due to memory bandwidth that they added to support the upgraded GPU for the higher resolution display.

          • tylernol

            the SOC still accounts for quite a lot of power consumption,as does the wifi and LTE chips. Yes the A5X was all about the graphics bump, I think they also got stuck at a larger process and could not ramp the clock speed any more. With the A6 , Apple is doing a custom layout of their own ARM -compatible cores, using IP they acquired(Intrinsity and PA Semi) , the A6 has a huge power/performance advantage now over everyone.

            TI cannot differentiate themselves, they are not a 3D graphics company and they are not a communications IC specialist either. DSP specialist? Yes. But that does not help that much in this space.

            I dont know much about the Chinese and Taiwanese licensees. Google searching seems to imply they are at the low end, and I have never used them, so I cant say they are crap with any certainty but I wouldn’t be surprised if they were.

  • At least Amazon sells content to the Kindles. The Nexus 7 is also made at cost. How pathetic is that?

    • Marcus Moore

      There google makes their money from search and adds.

      This is the challenge. Each of these companies is moving to compete in the same areas, but each one has a completely different monetization strategy. So google and amazon are willing to sell at cost to get eyeballs and purchase content respectively. While apple traditionally makes money on hardware sales.

  • Ankle

    To be fair, Apple offers some products not just for no profit but in fact for no cost – iTunes, Safari, iOS, Maps, Mail, iPhoto (on Macs), … It’s a question of giving software away to sell hardware or giving hardware away to sell contents. Because hardware has a recurring cost, the best Amazon can do is sell it at cost, as opposed to truly giving it away.