Last week, Amazon announced its very own tablet to the market: the Kindle Fire
Though it is arguably less powerful or functional than its main competitor — Apple’s iPad
The Method Behind the Amazon Kindle Fire Madness
Of course Amazon is doing everything it can to get its tablet into as many hands as possible. As a late-comer on the tablet scene, Amazon has some ground to cover if it hopes to gain some of the market share, and one part of this goal necessarily includes the price.
But selling units is just the beginning. Losing money on the device itself is not a winning business model if that’s all Amazon were trying to do. Certainly, this is not Amazon’s end goal.
Borrowing the Console Video Gaming Business Model
I’m not privy to any insider information, but it seems apparent from the outside what Amazon is up to. Similar to the strategy of console video gaming businesses — such as Microsoft’s Xbox
For years console video game businesses have been selling their consoles — very expensive, high-tech pieces of equipment — at cost or cheaper and then making up their loss in the game sales (the price for a new release for Xbox 360 or PlayStation 3 is currently $59.99). These business minimize the barrier to entry with drastically discounted hardware, creating a highly targeted group of customers who will buy the games for these consoles for years after.
Amazon is clever to realize the potential of this model in the tablet market. In its marketing copy, Amazon emphasizes the ease of accessing movies, TV shows, music, magazines, and books from the Kindle Fire — additional services that are all offered from Amazon. With an Android-powered OS, there are tons of apps available for the Kindle Fire, also available for purchase through Amazon. By ushering customers into “Amazon Land,” the Kindle Fire practically creates a captive audience for more Amazon products.
Moving beyond the basics of the console video game model, Amazon has the ability to increase the precision of its marketing with its proprietary web browser: Amazon Silk. For consumers, Amazon Silk is supposed to create a faster, more powerful web browsing experience; but for Amazon, users of the Silk browser stoke the marketing fire with the fuel of browsing data, which (despite any promises of anonymization) will surely be used by Amazon to refine their marketing strategies.
The Wave of the Future?
Though this model isn’t new, this is the first time that it’s been used in the tablet industry. And if it’s successful for Amazon Kindle Fire, I wonder how long it will be before others start to follow suit. Will we start seeing Apple tablets priced below cost? Share your thoughts in the comments below.
A $10 loss (now) is quite manageable, and not a shattering loss leader technique. The pricing on the components that go into this, primarily the larger chips, will be dropping throughout the next year. So very quickly Amazon will be going from a slight loss to making a lot of money. They of course make a lot of profit from the ebook sales.
Thanks for your comment, J.S. It’s true that the price of components will drop, but I expect that the price of the device will drop as well, though perhaps not as quickly as the price of the components.
Something I forgot to mention in the post is the free month of Amazon Prime. Amazon certainly hopes to get Kindle Fire owners hooked on the benefits of a Prime membership, generating a steady, recurring income from those users.