Amazon has just admitted to BBC that they make no profits whatsoever from their Kindle Devices instead the money relies on customers buying eBooks and other content from Amazon’s store. This admission has been made along with the announcement of the Kindle Paperwhite in the UK.
Jeff Bezos, CEO of Amazon while speaking to BBC said:
“We sell the hardware at our cost, so it is break-even on the hardware. We want to make money when people use our devices, not when people buy our devices.”
Amazon has different strategy for earning money through their devices. They don’t want to earn the money everytime they sell a device but instead they want to make profit whenever a customer uses their paid-services or buys something from their Stores. Amazon explains that when customers visit their stores they’re presented with various offers and subscription plans, so whenever someone buys an ebook or subscribes to a service, Amazon makes a bit of cash on that sale thus making it big in the long run.
FOr example, The Kindle Paper White would be accompanied by Amazon’s Lending Library when it hits the shelves in UK. Giving its customers an option to borrow ebooks from the Library but this services would require the customer to Subscribe to Amazon Prime service at $49/year, not bad at all.
This type of approach in business has made it possible for Amazon to keep the prices of their devices at a very competitive level thus giving it an edge over the competition. However, it remains to be seen how the new Kindle Fire HDs can get an upperhand over the Nexus 7 that comes in the same price range and offers a great deal of content via Google as well.
What are you thoughts on Amazon’s business model?