I was reading an article, "Why Amazon Can't Win a Tablet Price War Against Google" (the title is basically the premise).
At first, I thought, "there are some good points here."
Moments later, that turned into, "WTF? This is ridiculous and invalid.
The article had some good points, but seems to be ignoring a lot, and overall, it's a poor article.
To be honest, I think the author was trying to center around the semi-clever analogy, "the Fire is just another box for Amazon", and intentionally or myopically left stuff out.
He ignored low-level things like Amazon is doing away with boxes (shipping items in their own packaging), and higher level things like their ridiculously successful digital distribution (their Prime subscribers, their hundreds per month $5 MP3 albums, Prime Instant Videos, etc.).
Then there's Amazon's cloud storage (consumer and enterprise S3), their negative inventory business model, the fact the business is built around making their money per transaction, etc.
And while this particular author says it's not sustainable to lose money on the manufacture of each device, it is when it's amortized across the business (think the Xbox and Xbox 360 business unit growth and P/L distribution across quarters and other business units under Microsoft's digital entertainment umbrella).
He claims the loss on manufacture of the Fire is between $10 to $70, which tells me he doesn't understand what the loss is, and is discounting reduction of manufacturing cost over time as components become far cheaper (economies of scale, efficiencies in manufacture, successive technologies, etc.) -- again, the Xbox / 360 growth is an example of that.
Also, Acer and Asus -- tablet providers he classifies as "Companies that are in the tablet hardware business only" "that sell tablets for profit" -- sell tablets for $199 (for a profit; they're not loss-leaders, which wouldn't work in this context). Amazon can easily do likewise.
And then there's just flat out odd stuff he says in the article -- like
"Any discount retailer, from Wal-Mart to Costco, has to make it up on volume. But Amazon can't."
Really? Amazon is an online discount retailer that's perfected the Dell negative-inventory distribution model. Of course they can make it up by volume.
As far as dogging the subsidy model (Amazon allegedly subsidizing manufacturing loss), think the handset carrier analogy (which is a perfectly sustainable model). The Fire is analogous to the handset, Prime to the phone service, and Amazon purchases are the way-higher-margin-than-microtransaction purchases.
This is not to discount Amazon having some serious competition from Google, and it's possible official tablets.
But Amazon's foremost advantage may be it genuinely has a product portfolio mindset, which is something -- to be frank -- Google struggles with. As a concrete example, I pitched an all-ecosystem offering to the stakeholders for each of the ecosystem pieces, and the people I talked to seemed genuinely confused and/or uninterested in its combinatorial value-add across the ecosystem (outside of their individual piece). Pitching the same concept to some other "ecosystem-type partners" blew their socks off, and there's a mad scramble from them to snag it and make it happen in some form or fashion.
Second, Amazon could open their Fire platform. Right now, the Fire is a semi-locked Android tablet, which turns a lot of people off (myself included, but not enough to keep me from buying one). Amazon could open the Fire up to a "legit" version of Android, and become a partner for Google's ecosystem, and make the device more appealing to more folks.
Amazon could make some content free or cheaper on the Fire, and charge more on other platforms. They could do the Microsoft Windows Phone model (Halo ATLUS, Kinectimals, Xbox Live app), and make the Kindle, Prime, and related apps free on the Fire, and charge for the other versions (or make them free on both, but feature-richer on the Fire).
So that's probably enough about the Fire and that myopic business assessment.
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