News by Andrew Kameka on Friday October 12, 2012.
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It's long been said that Amazon's low-cost Kindle Fire tablets and Kindle eReaders don't turn a profit for the online retailer, and CEO Jeff Bezos has confirmed that to be true in an interview with the BBC. Bezos told the BBC, "We sell the hardware at our cost, so it is break-even on the hardware."
While most companies sell their devices at a markup to generate profit and cover marketing costs, Bezos says that Amazon is focused on making money through its digital offerings. The Kindle Fire tablet may not directly generate money, but customers who buy the tablet are more likely to purchase books, apps, games, and videos. Kindle device owners read four times as much as they did before buying the tablet or eReader, so Amazon believes it's more valuable to sell Kindles at a lower cost to get them in as many hands as possible.
Amazon isn't the only company to employ this strategy. Gillette famously sold razors at a lower price, but the company sold so many razor blades that it still made a profit. A printer may not be a big earner, but the ink and toner sold by the same company generates more than enough money. Amazon has employed that strategy to sacrifice money in the short term in hopes to get a continued stream of revenue over time. Amazon has not revealed any financial data that confirms how successful this strategy is, or if it could still sell as much digital content by raising the price on its readers. Apple makes money selling the iPad and media in its iTunes store.source: BBC
Andrew is MobileBurn.com's managing editor. He is based in Miami, Florida.