Amazon's Profit Plunges 73%

If Sony had cottoned onto this strategy, Beta would have been the worldwide video standard and they would have been paid back massively in royalties.

Shifting hardware at a loss to lock in consumers is the oldest trick in the book. Nowhere is it more important than when introducing a new technology and a new way of working. I can see that in 10 years time a Kindle will be almost free.

Some estimates(read:guesses) think that 50% of kindle users will subscribe to to amazon prime. Prime users are extremely loyal to amazon, do all their online shopping in amazon and use brick and mortar shops much less than before signing with prime.They tend to buy 3x-4x than before, in amazon.

Prime is a very hard service to provide. It requires a big and expensive logistics chain. It's a monopoly level competitive advantage. It can make amazon a monopoly in the range of walmart (maybe).

Also the kindle fire is a great advertising unit. Better than TV - because the ads can be much more targeted, And you can buy with a single click from the ad.

Combine the two, and amazon gets almost total control of the customer.

And given Bezos's brilliance that's probably only the tip of the iceberg.

So what's a little discount on a little gadget to get all of this ?

Their policy for the other Kindles was to recover the R&D initially and then sell them at not much more than cost.

First, you need to prove beyond any doubt that the Fire is being sold at a loss. Once you know this, set up some dummy stores and invest the billions of dollars you have laying around in buying as many as you can. Once you have them, put them all in a compactor. Make sure each one is destroyed without anyone having laid a finger on it. See how long Amazon can sell these things at a loss without making anything from them.

For start though, the deprecation policy itself can be changed. So as long as there is a note in the accounts giving some justification, I can say "I am not depreciating these assets". This is a crude way to manipulate depreciation and generally any competent auditor would flag it.

Buying a new warehouse for example you generally wouldn't depreciate at all (usually holding it at cost and revaluing it every so often). So apportion all costs relating to buying the warehouse (including cost of machinery in the warehouse, connecting it to your IT network, legal and admin work) as a one line item Fixed Asset: Warehouse, and you just avoided all depreciation. (It will still be shown on the accounts, but doesn't touch the income statement.)

Or you can decide to put it as a 5-year rolling investment as you put it and you're charging 20% depreciation.

Or you can decide that this investment is not a one-off thing and is part of the core business (perhaps you're buying warehouses all the time). So then you can charge the whole lost as an expense.

I suppose my point (back to the topic) is that Amazon's profits have gone down largely because of how Amazon's accountants have decided the best way of presenting their investment costs in their accounts. It makes sense to reduce book profits as that reduces your taxes. (Generally true, though I know in UK corporation tax calculations we don't take into account depreciation for the very reason that its manipulatable). A profit dive is especially fine if you have continued impressive revenue growth to point to and can claim that these investments are clearly worth it. Nobody is going to claim that Amazon is in serious trouble.