Hacker News Reader

Comment by chugger | Hacker News Reader

How about the $50 Amazon is losing per Kindle Fire sold?

A tried and true strategy. That has worked for (in no particular order) : ATM's, Printers, Razors, Mobile Phones, Gaming Platforms and probably even cars in some cases.

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.

My understanding is Apple doesn't make all that much money off the iTunes Store using a similar model. Does it really work for digital media? (besides console games)

Apple doesn't use a similar model, they use the exact opposite model. They sell content at minimal profit to enhance the ecosystem for their devices, which they make a very tidy profit on.

Maybe for music, but is that still true for the App Store?

Apps is a special case were they make a nice profit from both selling apps that they haven't created and selling devices that run said apps.

It's still pretty true for the App Store. Apple hit the $2B paid out to developers mark early this year, IIRC, which means about $1B of revenue for Apple for the entirety of the App Store's existence. Their latest quarter saw nearly $30B revenue, so it's still a pretty tiny part of their business.

How so? From what I've seen the prices on the iTunes Store for books, movies and music are higher than Amazon.

It amazes me that they didn't do this for the PS3. Many tablet are making the same mistakes today.

The PS3 is the poster child for this type of tactic, at their beginning they sold for $300 less than their cost of goods.[1] Their failure has nothing to do with locking in a market due to price. [1]http://www.gamasutra.com/php-bin/news_index.php?story=11740

It wasn't enough. They may have been selling at a loss, but the introductory PS3 prices were at least twice as much as the Wii. When Sony began to cut prices, sales jumped. A $100 price cut in 2009 doubled sales: http://kotaku.com/5356885/npd-ps3-sales-gain-ground-on-price...

If I also remember correctly, the Wii was the first modern console (post NES, I assume) that sold at a profit, which was a measly $6.

http://www.joystiq.com/2008/12/01/forbes-nintendo-making-6-p...

As far as I remember, Nintendo always did that, selling each console at profit, however small that may be, starting from NES, to Super NES, N64, Gamecube and now Wii (and I guess, soon WiiU).

So Nintendo was the only manufacturer who did not apply the "razorblade" model of the other console makers, which is understandable since they were and are a videogame company only and thus never had any other branches which could have been able to subsidize their console business in the beginning (unlike for example Microsoft).

I think the first console Nintendo made that actually sold at a loss is the current 3DS handheld and that may be after the very fast initial price cut after the slow reception on the market.

Sony's problem there was that the PS had very expensive parts, so they had a harder choice to make on pricing to be competitive.

Nintendo, meanwhile, couldn't keep Wii in stock for more than half a day until something like 2 years after launch, so they could have raised the price about $100 and not lost a sale

Its a tried and true strategy if there wasnt a better strategy. Amazon doesnt need to create their own hardware. They are doing just fine selling Ebooks via their iPad and android apps. Low overhead, more profit. Selling their own hardware does not provide any value add to the customers, all it does it reduce their margins and profit. People already buy ebooks via their apps.

People are talking like this is a good move by bezos. It's not.

More profit selling for iPad and android apps is not a given. People that buy Kindles probably end up buying more books -- and there's also more lock-in.

By selling Kindles, Amazon can secure their place in the ebook market. Without it they'd be just another player. And they probably get better margins on ebooks, since distribution (bandwidth) is cheap.

While the Kindle can handle ebooks from other sources, there's an Amazon logo on every one, and the 3G versions makes it so convenient to buy from Amazon that most customers probably won't shop around. For the iPad and Android they're facing off against a wide range of other players.

You obviously don't have a Kindle. I would never try and read an ebook on an iPad after having a Kindle. It is chalk and cheese.

Once you setup your account on your Kindle, it is 1-click purchasing to get yourself a new book.

Sure, you might shop around for an ebook, but most people aren't going to. They'll just search on the Kindle, click the 'yes I want it' button, and you're finished. Total platform lock-in. Tech people might get sniffy but to the average person it's like going from vinyl to iPod.

There are two Kindles in this household. Since their arrival, the yearly book spend has probably tripled. Previously most reading was re-reading older books and taking trips to book exchanges.

All this is possible with other platforms, yes, but the Kindle is just the physical part of an entire delivery system. The margins on ebooks has to be better than print by an order of magnitude, even though the price is lower.

Totally agreed.

"Well, since Moore's law makes computation really cheap, let's just give away the computation, but keep the data."[1]

[1] - http://edge.org/conversation/the-local-global-flip

Don't forget Amazon Prime -- Amazon, on average, takes a hit on the shipping costs when you sign up for Prime.

This number is meaningless(and probably wrong) if you don't know the extra profits it would generate, and what's at stake here.

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 ?

That 50% number seems high to me. Seems chicken-and-egg. Do they buy a Kindle then subscribe to Amazon Prime or do they use Amazon a lot and thus get both a Kindle and Amazon Prime?

And like most chicken-and-egg questions, the answer is both and neither.

As someone who has spent far too much time puttering around brick-and-mortar stores recently, before walking away in disgust and just buying it on Amazon, I can't help but think Amazon is just spending to widen an already vast competitive edge.

This isn't apples versus oranges. This is sailboat versus steamboat.

When you buy a kindle fire , you get prime free for 30 days. after that, you need to subscribe.

Yes, the 50% is high, but people who tried prime are really , really happy with it, so maybe 50% makes sense.

And yes, it's definitely cars vs horses.

And when they (we) are in store they break out the Amazon app, scan barcodes and have items shipped next day at a sizable discount over the store cost + sales tax.

Has that been confirmed? I've heard anywhere from $5 to $50, and its always been from analysists trying to estimate the cost from parts. As far as I know, the only people who really know how much the Kindle costs to make are Amazon.

This piece gives a run down of all the analysts claims, with some calculating a $50 profit instead but as you can imagine none of it is substantiated.

http://news.cnet.com/8301-1023_3-20114722-93/amazon-kindle-f...

Interesting. To summarize, it looks like the $50 loss comes from an analyst comparing it to the iPad, whereas the $50 profit claim comes from a firm comparing it to the more-similar BlackBerry Playbook. The research firm that did a tear-down estimated it at about a $10 loss.

In other words, no-one really knows, but it looks like they're probably closer to breaking even than chugger claims. Chugger is taking the worst-case estimate here, and also the one that seems the most unsubstantiated.

Thanks for the link.

chugger == troll. A good one, but still a troll.

http://news.ycombinator.com/threads?id=chugger

It is a tried and tested method for selling technology. Look at the history of the Sony Playstation. Sell the hardware at a loss and make double your money back from software and content.

Apple, if you're listening, I've got an idea!

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.

Apple's cash-on-hand is nearly as much as Amazon's total market cap. If they wanted to take out Amazon, there are much easier ways.

I was just doing the numbers on my 6 month old Kindle: 250 dollars spent on books since then, I wouldnt worry about device losses.

Yeah, how about losing money on every book sold back when they started? It seemed to work for them.

Amazon has never said no to paying a dollar of fixed overhead to generate $1.01 in lifetime marginal profit. Amazon is also willing to write down the first 5 years of a product's life as overhead. That is JeffB's genius (along with the ability to get the accounting right on these razor thin margins).

They haven't sold any yet.

Given that it's specs aren't much more than $100 chinese Android 2.3 tablets I doubt they are losing anything. Especially since they don't have a retailer taking 30%

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

Reply on news.ycombinator.com