Quote:
Originally Posted by calvin-c
It might derive from tales that Amazon loses money on ebook readers-which I believe is true. As with many tales, it gets twisted-but losing money on hardware to make it up on supplies is a proven market strategy.
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Could be.
But even the iSupply breakdowns estimate the eink Kindles sell for around breakeven. And that is without factoring in any ad revenue from the SO versions. All we know for a fact is that Bezos said they make their money on the content instead of the hardware. Doesn't automatically mean they *lose* money on the hardware.
The "Amazon loses money on ebooks" meme predates the four hour price war, though. So it probably didn't start with the cheap readers.
It goes back to the days of the K1 and K2 and started with a report that Amazon was selling a specific bestseller for less than they paid the publisher. From there it ballooned: "Amazon loses money on one bestseller" became "Amazon loses money on all bestsellers", neither of which is particularly important even if true, to "Amazon loses money on *all* ebooks" which would be important if it weren't false.
The main problem that people have with Amazon pricing is that:
1- They are happy to live off 5% or lower margins if they have to
2- They don't incur the same level of costs as their competitors (for example they don't pay Adobe for DRM and authentication on ebooks, their warehouses are heavily automated and eventually they bought out the supplier of their robots, etc)
3- They are very efficient and they, ahem, "encourage" their suppliers to be similarly efficient. This last one raises hackles all over because it implicitly tells suppliers that "if you can't make a good profit at that price you aren't running your business right".
Add it all up and you get that Amazon is on ocassion able to make a profit at prices lower than some competitors' costs. Which doesn't endear them to competitors who can't invest in robotic warehouses and a zillion fullfilment centers all over the planet.
A good example to study to appreciate the road Amazon is treading is the impact Sears, Roebuck had on the 19th Century US standard of living. And how Sears evolved over its first fifty years. What Sear achieved with printed catalogs and train, Amazon is achieving with the internet and modern logistics. There is nothing magical or diabolical about it; just enough vision to see where consumer interest lies and where technology is going a willingness to make big bets based on that vision.