Amazon recently launched its Kindle Fire HD and Paperwhite products, both of which have already appeared to be very popular with consumers. However, Amazon isn’t taking your cash to the bank, it’s simply using it to cover the cost of the products it has already built. “We sell the hardware at our cost , so it is break-even on the hardware,” Amazon CEO Jeff Bezos told BBC in a recent interview.
Meanwhile, cash-heavy Apple is definitely taking in profits for each device it sells. So why isn’t Amazon taking out profit? Our best guess is that it wants to continue to dominate the 7-inch tablet market, which is currently ruled by $199 devices. To compete, the online retailer obviously needs to keep the features attractive while maintaining the same price point that it introduced with the original Kindle Fire.
But Amazon can profit in other ways. Its products are a gateway to its digital services, and consumers can use the Kindle Fire HD to buy games, movies, TV shows, books and applications. They can even buy other products from Amazon. So, ultimately, by providing consumers with a means to buy its other goods, Amazon can and probably does pull in profit.
“We want to make money when people use our devices, not when people buy our devices,” Bezos explained to the BBC. “What we find is that when people buy a Kindle they read four times as much as they did before they bought the Kindle.”