Amazon: breaking even on popular Kindle sales

In an interview with the BBC, Amazon CEO Jeff Bezos confirmed what many surmised: Amazon is selling the Kindle Paperwhite and Kindle Fire HD at cost.

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    Amazon CEO Jeff Bezos confirmed that some of the company's Kindle devices are sold at cost, meaning Amazon doesn't make a profit on the devices themselves but makes up for that loss with sales of content – from books to games to video.
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It’s what many of us have suspected all along, but Amazon’s Jeff Bezos only recently confirmed it.

Several Kindle devices are sold at cost, bringing Amazon no profit on the hardware.

In an interview with the BBC Wednesday, Bezos admitted that the Kindle Paperwhite and Kindle Fire HD are priced so low Amazon breaks even on the devices.

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“We sell the hardware at our cost, so it is break-even on the hardware,” Bezos told the BBC.

Of course, Bezos isn’t necessarily doing the consumer any favors. That aggressive pricing is part of his goal to get Kindle tablets in as many hands as possible in order to broaden the base of consumers for Amazon’s online content – from books to games to video – which is the real cash cow of Amazon.

That strategy differs starkly from Apple’s. Apple makes a profit on every iPhone, iPad, and other iDevice it sells, with much content thereafter available for free, or “slightly above” break-even on iTunes content.

“Amazon is making a strategic move in both customer acquisition and retention,” writes Forbes.com. “...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.”

Even better, Bezos has found that Kindle users typically start reading a lot more once they buy a Kindle, all but ensuring lost profit is made up for later.

“What we find is that when people buy a Kindle they read four times as much as they did before they bought the Kindle,” Bezos told 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.”

Of course, this strategy has also put downward pressure on Amazon’s e-reader rivals like Barnes & Noble and Kobo, bringing us rapidly falling e-reader prices.

What’s the better deal for consumers? A higher-cost tablet that offers a wealth of free and lower-cost content, like an iPad, or a relatively affordable Kindle offering content – from books to games to video – that may cost us more in the end? And who makes out better in the long run – Apple or Amazon?

Husna Haq is a Monitor correspondent.

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