Amazon Bets It All On Service

Late last week, Amazon’s CEO Jeff Bezos confirmed to the BBC what most of us already expected: the company doesn’t make any profit from the sale of its Kindle line. He said, “we sell the hardware at our cost, so it is break-even on the hardware.” This is a stark contrast to the strategies of Amazon’s competitors, namely Apple. Bezos went on to say, “we want to make money when people use our devices, not when people buy our devices.”

This is not some revolutionary discovery from within the technosphere, mind you. Ever since the Kindle Fire was first released, it had been speculated that Amazon couldn’t be making a profit from its low price. But Amazon has something that many competitors don’t: retail. Unlike Apple or other Android device manufacturers, Amazon has the world’s largest retail catalog online–and the Kindle products are the perfect gateway to the store.

Nick Bilton, who is a columnist and the lead writer for The New York Times Bits Blog, perhaps said it best when Amazon announced its latest Kindle line a little over a month ago, “today’s Amazon announcement says this: We have our own patents, our own hardware, can afford to subsidize, and we’re going after Apple.”

Aside from physical retail, Amazon’s huge collection of digital goods are another revenue stream. Every user of a Kindle eReader will undoubtedly be making many purchases through Amazon’s Kindle Store. The company also offers digital music to rival Apple’s iTunes and a growing collection of streaming movies and TV shows (for Amazon Prime members) that is starting to challenge Netflix. Additionally, Amazon runs its own Android app store, from which it takes a cut of the sales.

It’s actually a brilliant business model. Produce a piece of hardware that levels out to being free for both the producer and consumer, then profit from its use.  Not only does this differentiate Amazon from its competitors, it may also give them a leg up.