Amazon's 'razor blade' choice

With the admission this week by Amazon's Jeff Bezos that the company doesn't make any money on its new Kindle Fire tablets and Paperwhite e-readers, people could be excused for asking, "Is this any way to run a business?

Or more bluntly, "Is Amazon crazy?"

Crazy like a fox, perhaps.

Amazon is simply following a classic business model sometimes dubbed the "razor-and-blades" strategy.

Put simply, it means selling something at cost, or even giving it away, to increase sales of a complementary and often required product.

The concept is often credited to safety razor innovator King Camp Gillette, who is supposed to have said: "Give 'em the razor; sell 'em the blades."

While a tablet computer is a lot more expensive than a razor, the concept still applies; Amazon by design has chosen not to make any profit on tablet or e-reader sales but expects to make massive profits by selling the "razor blades" -- the millions of books, videos, songs and computer apps it hopes consumers will buy online from the company.

"Basically, we sell the hardware at our cost, so it's break-even on hardware," Bezos told the BBC.

"We want to make money when people use our devices, not when they buy our devices," he said. "The continuing relationship with the customer is where we hope to make money over time."

Amazon is willing to sell tablets and e-readers without immediate profit to lock buyers into the Amazon "ecosystem" of downloadable book titles, movies, songs and apps.

So a Kindle or Paperwhite owner may have gotten a good price on the device, paying no more than what is cost Amazon to build it, but as soon as the user decides to download a current bestselling book to read in e-book format-- average price $14.99 -- that's immediate profit going into Amazon's pocket (minus what it pays the publisher, of course).

The latest Rihanna album as an MP3 download? $7.99 for Amazon. Season 1 of Downton Abbey? $9.99. Angry Birds in Space HD Kindle Tablet Edition? $2.99, please.

So why doesn't Amazon choose to make a profit on both the tablets and e-readers, then further profit on content?

One reason: the Apple iPad.

The iPad dominates the tablet market, so Amazon must look for a way to attract consumers to its products and has chosen the simplest and most traditional strategy -- a lower price.

Apple reportedly makes a profit of around 40 percent on every iPad it sells, but to do so must sell at a considerably higher price than a comparable Kindle Fire tablet.

By choosing to sell its tablets at cost, Amazon hopes to give consumers an attractive choice: $369 for a Kindle Fire versus $499 for an iPad.

Then come the razor blades.

source: upi.com

Kindle Fire chomps on iPad’s share, but Apple still leads tablet market — IDC

MANILA, Philippines — Bolstered by the success of its widely popular Kindle Fire Android tablet, eCommerce giant Amazon went on to secure the 2nd spot in the worldwide tablet market as of end-2011 as Apple sustains its market-share lead, research firm IDC said Tuesday.

In its Worldwide Quarterly Media Tablet and eReader Tracker, IDC revealed that Apple’s share has slipped to 54.7 percent worldwide in the last quarter of 2011, down 7 percentage points from the previous quarter.

IDC reported that Amazon was responsible for eroding the iPad’s share of tablet shipments as it corners 16.8 percent of the market with 4.7 million units of the Kindle Fire shipped during the period.

The Kindle Fire’s record showing — particularly during the Christmas season — was followed distantly by Korean electronics firm Samsung (5.5 percent), Barnes & Noble (3.5 percent) and Pandigital (2.5 percent).

It is worth noting that aside from Samsung, none of the major electronics and PC brands that have come out with their own Android tablet flavors have made a significant dent on the market.

“Amazon’s widely-reported entry into the media tablet market with a $199, 7-inch product seemed to raise consumers’ awareness of the category worldwide despite the fact that the Fire shipped almost exclusively in the U.S. in the fourth quarter,” said Tom Mainelli, research director for Mobile Connected Devices at IDC.

In terms of operating systems used, the research firm noted a significant increase in the share of Google’s Android OS, jumping from 32.3 percent in the third quarter to 44.6 percent in the last quarter of 2011.

This came at the expense of Apple’s iOS share, which fell to 54.7 percent during the period. BlackBerry’s share, meanwhile, slipped to below 1 percent for the first time, as Hewlett-Packard’s WebOS dropped its market share to zero during the quarter.

IDC, however, took particular notice at the iPad’s stellar showing during the quarter, but made no comments about the release of its new iPad.

“The success of market leader Apple was particularly noteworthy, as the company’s shipment total for the quarter represents an increase of 110.5 percent from 4Q10,” Mainelli said.

This year, IDC predicts that Apple will ship a total of 60 million units of its iPad line worldwide, although the clear dark horse are Android tablets, which would grow its shipments to 53.9 million this year.

“Looking ahead, IDC expects Android to continue to grow its share of the market at the expense of iOS,” IDC added.

In total, tablet shipments jumped 155 percent on a year-on-year basis to 68.7 million units as of end-2011, which IDC is predicting to reach 106.1 million units this year, thanks to the market’s strong 2011 finish.

source: interaksyon.com

Amazon sells 3.9 million tablets in Q4 2011: report

SAN FRANCISCO — Amazon.com shipped nearly 3.9 million Kindle Fire tablets in the last three months of 2011, making the online retail giant the world’s second-largest tablet maker in the quarter, market research firm IHS said on Thursday.

With the soaring sales of Kindle Fire, Amazon captured 14.3 percent of the global tablet market share in the quarter, surpassing Samsung Electronics to take the No. 2 position, according to a new report by IHS.

Apple remained the dominant player in the tablet market, shipping 15.4 million iPads, but its share dropped to 57 percent in the fourth quarter from 64 percent in the previous three months.

The debut performance of the Kindle Fire, which hit the market only in mid-November of 2011, played a strong role in Apple’s share shift, but it was Apple’s own newly introduced iPhone 4S smartphone that proved to be the strongest competitor for the iPad, IHS analysts noted.

“The rollout of the iPhone 4S in October (in 2011) generated intense competition for Apple purchasers’ disposable income, doing more to limit iPad shipment growth than competition from the Kindle Fire and other media tablets,” Rhoda Alexander, senior manager of tablet and monitor research for IHS, said in a statement.

Looking forward, analysts predicted that Apple will reclaim its tablet market share when it starts to sell the next version of the iPad, which is expected in the second quarter of this year.

As for Kindle Fire, the long-term viability of the product will hinge on the success of Amazon’s business gamble, “which depends on tablet sales driving substantial new online merchandise sales at Amazon.com in order to attain profitability,” Alexander said.

source: interaksyon.com