The economics of this seem pretty simple to me. To whit:
1) Amazon is not running a lending library. They run a business.
2) They've sold ~ 500,000 Kindles, from what I've been able to research so far.
3) They have a long way to go before most people are sold on the Kindle (or other e-book readers, for that matter).
4) Amazon can afford to take a loss on e-books, because the only real cost they incur (per sale) is from Whispernet. It's not as if they (or the publishers) have to keep producing them. As long as one copy stays on a server somewhere, users can download that copy. (Obviously, they need more than one server, but they shouldn't need more than one file copy per server.)
5) People are free to buy or not buy Amazon's ebooks, as they please. But if you paid $360 for a Kindle, I don't understand why you'd want to turn it into a paperweight. What do you think'll happen if Amazon doesn't think they can make decent money on e-books? (See #1)
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