Originally Posted by JeffDM
Amazon's cut might be $3 on a $10, but that's before expenses not the net profit. I'd be surprised if net is $1 a book. With a Kindle in the mix, I wonder if maybe they're still losing money on every part of their media business, hoping to be the dominant player once the dust settles.
I really don't know how they can manage with Prime. $4 an item for overnight, even Saturday delivery, they're getting a deal that I don't know about, and maybe losing a bit at it too, I don't know what mix that would be. If I ship with FedEx or UPS, the Saturday delivery upgrade alone is $12. All this, even on items less than $10.
As for the press release, they're playing the media for fools, and I think that's justified in some way, but it really does everyone a disfavor, because it's easy to weasel by saying it's best-selling, we don't know if that means something or not. It is a little harder to legally lie about actual numbers sold. Possible, I think, but harder, lying about that figure puts them at a liability if shareholders sue.
We can figure the numbers fairly easily. Amazon sells content at about the same price as Apple. It's agreed that Apple makes between 3 and 5% profit per sale. That's profit on the entire sale, not their 30% cut. But that still pretty small. On $10, that's only $0.30-$0.50! Amazon has the same costs Apple does in running their business. But Apple has vast hardware sales to make up for it, and last year, Apple's net (profit) was 24.5%. Compare that to Amazon. Which had just 3.37%. That number comes close to the middle of their expected content profit margin, and that's for the entire company.
So, how do they make a profit on Fire sales, or Kindle sales overall? Well, it's assumed from several sources that Amazon, at best, breaks even on the hardware, and at worst, is behind by about 20%. We can't just look to the estimates of parts cost for these devices, because that's just between one half and two thirds of the total cost to manufacture, deliver, service, etc.
This means that Amazon has to sell a lot of content to just break even, and a lot more to make some kind of real profit. This drives the percentage of profit very low, on the order of a percent or two. But two things conspire to make even that problematical. One is that there is no guarantee customers will buy enough content to make that profit, or to even break even. This is not a cell carrier who can lock you in with contracts. Two, is that if you're already an Amazon customer, and buying that content from them some other way, the way I do, then you aren't bringing them more business when you buy a Kindle reader, or the Fire. So they lose money on you.
This is a chancy business plan for them. One which may not work out. But it's hard to tell with them because they still refuse to release numbers. Now, that's interesting, because they. Usi release information about this under one circumstance. That is if sales are material to the business. That means that it's of a high enough percentage to affect company financials in a meaningful way. Amazon denies that it does. Well, if it isn't affecting their financials enough for them to need to release the info, then exactly how successful is this business?
They stated that Black Friday Kindle sales were four times that of last year, but that tells us nothing. They have more models out, and prices are significantly lower. But even a reasonable guess is close to impossible.
I can say that for the past few months, I've been seeing more Kindles around that ever in the past. So, that's something.