The outspoken Amazon CEO, Jeff Bezos, revealed yesterday that Amazon makes no profit on Kindle devices. He explained in a BBC interview that the aim is to get Amazon’s tablets and e-readers into as many hands as possible and then generate profit by selling content.
He told the BBC:
“Basically, we sell the hardware at our cost, so it is break even on the hardware. We’re not trying to make money on the hardware. We want to make money when people use our devices, not when people buy our devices.”
We’ve discussed Amazon’s assault on the Android platform before. The strategy is to provide very competitively priced devices which are shuttered into using Amazon services. In effect they offer a window into Amazon’s content store and the real profits roll in over the long term as people buy e-books, movies, TV shows, apps and games.
The whole range, from the 7-inch Kindle Fire HD at $199 to the rock bottom basic Kindle e-reader at $69 is being offered at cost, so Amazon just breaks even on the hardware. That’s a sharp contrast to Apple’s strategy of making money on everything, especially premium-priced hardware. Google comes somewhere between the two, looking to make a modest profit on the Nexus 7.
In addition to the content sales Amazon also advertises on some of the Kindle range which should generate a bit more income. The company is also adept at offering tie-ins and incentives to shop through its e-commerce store for all kinds of other goods.