After last week’s Amazon press event, where they announced a new Kindle Fire that they’re going to sell for just $159, the same question was on many people’s minds: how the heck are they making any money off it? The answer, as many people may have guessed, is that they simply aren’t. Not much, anyway.
ReadWriteWeb has put together an astonishing chart that illustrates how different Amazon’s corporate philosophy is from that of major competitors like Apple:
While Apple is focusing on making big profits off their hardware, as evidenced by the sky-high prices of most of their products, Amazon has chosen a different path. They’d rather sell their hardware as cheap as they possibly can, and make their money from people using and being satisfied with their devices. App sales, e-books, etc. will all help Amazon make money, but only if customers have their hardware - and use it regularly – in the first place.
Amazon’s CEO Jeff Bezos said it best in his speech at the recent Amazon press event: “We want to make money when people use our devices, not when they buy our devices. If someone buys one of our devices and puts it in a desk drawer and never uses it, we don’t deserve to make any money.”
It’s an admirable philosophy, and one you won’t hear from very many companies. It’s certainly a departure from Apple’s philosophy – their approach is almost the exact opposite of Amazon’s, in fact: they make little to no money off services like the App Store or iTunes, but use them as an incentive for people to buy their hardware, which they make boatloads of money off of.
Apple’s CFO outlined this concept back in 2008, and it’s remarkable how much it sounds like the polar opposite of Amazon’s strategy: “We’re thinking about the App Store in the same way that we think about the iTunes store. While it will generate some revenues, it will be a small profit generator, and just as with the iTunes store making iPods more attractive, we think the App Store will make the iPhone and iPod Touch more attractive to customers. We’ll hopefully see an indirect return by selling more iPhones and iPod Touches.”
Still, whether the money is coming from soft goods like e-books and iTunes music, or from hardware like Kindle Fires and iPhones, the numbers don’t lie. Apple is taking a much larger chunk of your purchase dollar for themselves than Amazon, to the tune of several billion of them every quarter.