updated 06:22 pm EDT, Thu October 11, 2012
Kindle hardware sold at cost, so Amazon breaks even
E-retail giant Amazon makes no profit on the sales of its Kindle Fire HD tablet or its Kindle Paperwhite e-reader. Amazon CEO Jeff Bezos confirmed this in an interview with the BBC today, making a point to highlight the differences between Amazon's device strategy and that of tablet market leader Apple, as well as most manufacturers of Android-powered tablets. The company's sales strategy for its hardware is in keeping with Bezos' goal, stated when Amazon unveiled the new devices, that Amazon wants to make money when people use their devices, not when they buy them.
Amazon sells both the Kindle Fire HD and Paperwhite at cost, so that the company breaks even on the devices. Bezos did not reveal whether or not the company makes any money on the lower cost Kindle Fire, a slightly upgraded version of last year's original Kindle Fire. Nor does the BBC report say anything about Amazon's margin on the larger Kindle Fire HD 8.9, which competes more directly with Apple's iPad.
While Amazon makes no money on the hardware it sells, it does pull in profits from the content it sells to those who purchase its hardware. Amazon's e-ink devices have access to the company's massive library of books and other publications, while its tablet devices can access Amazon's app, game, and video libraries in addition to its print catalog. Conversely, tablet market leader Apple makes its money from wide margins on its hardware, which it then supports with digital content sold largely at cost.
In addition to the content Amazon supplies, the company is looking to use its hardware to spur sales of other physical products it sells. The retailer hopes to use the hardware in part to attract customers to its Amazon Prime service, which provides free shipping for physical items bought through the site, and it has tied the Prime service to its Kindle Lending Library, which allows customers to check out Kindle-compatible books for free. Lower shipping costs, it is thought, would encourage customers to go to Amazon when it comes time to buy any of the many products Amazon already provides.
While the company may not make a profit on devices sold, its devices have proved popular. A recent Pew poll found that Amazon's original Kindle Fire was the second most popular brand of tablet in the US, with 21 percent market share.