Originally Posted by Orlando
By your logic Apple's business model is presumably doomed since they operate the iTunesStore at break even rather than trying to make a profit. You don't need to make a profit on every individual item you sell. Look up loss leader.
BTW Amazon has previous said that Kindle owners purchase much more from Amazon than the average customer.
There is a major difference. Apple sells iPads, iPods, iPhones, etc very profitably. iTunes is a freebie that helps them to sell the profitable item - and they're not losing money on it, it's break-even.
The Kindle Fire is the exact opposite. They're selling the expensive item at a loss in the HOPES that they'll sell enough media to make up for it. There are several problems with that:
1. The loss is very large and the media is cheap. Amazon's average net is about 1% of sales. You need to sell 500 $10 books to make up a $50 loss. Or 500 $0.99 games if the loss is only $5 per unit. Since Amazon is not talking about ANY of those numbers, it's impossible to say how much they lose or how many books/videos/apps they sell per Kindle and it is therefore impossible to say whether they have any hope of recovering the losses.
2. We do, however, know the big picture. Amazon's profits were down by 58% last quarter. Apple's were up more than 100%.
Gee, I wonder which strategy makes more sense? A loss-leader only makes sense if you hope to make enough on the consumables to recover the losses-and there's absolutely no sign that this is the case.
Originally Posted by gcom006
The Fire/Amazon model has a much better chance of being profitable than Android in general,
Actually, even that isn't clear.
There are really 2 Android models for tablets:
1. Amazon's 'sell it at a big loss and hope to make it up on media'
2. Everyone else's 'try to sell it at a price where you can make a profit'
Now, it is likely that #1 will produce higher volumes, but in terms of profitability, that's not clear at all. The Samsung division that sells tablets made more money last quarter than the previous year. Amazon did not. Of course, there's nowhere near enough data to be sure how much profit (if any) came from tablet sales in either case, but there is also not enough to justify your claim - and your claim certainly doesn't fit with the known facts (see above).