Originally Posted by emellaich
The problem is that Amazon loses money on the hardware (slightly) and makes money on the content.
We keep hearing this but I have my doubts.
To put it briefly:
Amazon sells the KTouch subsidized by ad revenue at $99.
Kobo does the same.
B&N does it with only in-house book ads.
All three can expect significant content revenue from their walled gardens so a hardware subsidy sounds reasonable.
But so does Sony and they don't have any guarantee of significant content revenue. What if those readers aren't as expensive as everybody thinks?
Even a $5 difference could be enough to a company playing for the long haul.
Regardless, Amazon could use the Prime library as a value-add to position Kindle as a Premium reading platform, letting everybody else fight it for the entry-level, generic reader market.
Remember, Amazon is actively building up their exclusive content and paying some hefty advances to get it. Generally, hefty advances and rock-bottom prices don't go together. What I think Amazon is doing is positioning themselves to maintain their current price points indefinitely. So, next time Kobo or Nook drop their price, instead of dropping theirs, Amazon just adds features. Say, a free ebook a month forever.
Also, don't forget the flip side: Amazon sells the kindle platform to readers and then sells the reader base to authors and publishers. The Library is being sold as a way to boost visibility to authors so extending it's reach to the full Kindle user base increases the Library's value to the content providers.
Pure speculation, of course.
My point is that there are many ways to play this game and many different ways to win. The key is to leave as many options open as possible as long as possible and so far Amazon is keeping all of them open. They can just as easily cancel the lending library as they can expand it or make it a paid service.
They'll eventually pick one but it'll likely be the one we least expect.