It’s clear now that the flurry of the Kindle announcement is behind us that Amazon has learned a thing or two from another of the great success stories in American marketing. That other great success is Gillette, and the lesson its success teaches is that Gillette didn’t get rich selling razors. It got rich selling blades.
How the Kindle Fire will make money for Amazon is clear, despite the fact that Kindle Fire isbeing sold at a price that’s probably at or slightly below cost for the hardware. While Amazon was able to take advantage of an existing platform-the BlackBerry PlayBook-and have it run a version of Android instead, the fact is that the hardware is high-quality. So apparently is the software, which replaces the standard Android user interface and application suite with software designed by Amazon.
Even if you assume that Amazon’s programmers worked for free, the hardware costs are still likely to be higherthan the $199 that the Kindle Fire sells for. So if Amazon is going to lose money on every Kindle Fire sold, where’s the profit?
In short, the profit is in content. Every time you order a Kindle book or you buy a movie or an app from Amazon, the company makes money. Considering that it’s very unlikely, especially at first, that you’ll be able to find content for the Kindle Fire that doesn’t come from Amazon, the company will make up for its losses when you buy products or content. In other words, Amazon isn’t really selling a tablet. What Amazon is selling is a vehicle for sales of books, music, movies, games, apps and, of course, stuff.
But to be a vehicle that sells successfully, it needs to be a very good vehicle. This is why Amazon had to come up with a tablet that has very high-quality hardware and that runs software that will be attractive to customers. Unless those customers are willing to use their Kindle Fire tablets a lot, Amazon won’t get the return it needs.
But despite the fact that the Amazon Kindle Fire is at least subsidized by Amazon in hope of future profits, what consumers will see is the price, which is less than $200. Consumers will expect to see 7-inch tablets from other vendors sell foraround that same price, subsidized or not. In addition, they’ll expect to see the same kind of high-quality hardware that Amazon is selling with the Kindle Fire. Considering that Android tablets currently cost a lot more than that, themarket is in for a big shift.
If you look at the Gillette model, you’ll see how that shift will happen. When Gillette brought out the first of its line of safety razors with disposable blades at the beginning of the 20th century, the razors themselves were sold at a low cost.
Kindle Fire Owners Sure to Be Big Amazon Shoppers
The blades were also inexpensive, but they had to be replaced often. Gillette, which sold the blades by the millions every year, made money there. And it still does-even though Gillette stopped selling its old line of safety razors years ago, the company still sells the blades.
Compare that with Amazon, and you’ll see the parallel. While a book bought through Amazon for the Kindle doesn’t wear out, its value to the customer is reduced once it’s been read. Sure, some people read favorite books multiple times. But most people don’t want to keep ebooks around for possible rereading. So effectively once the book has been read, they need to buy a new book. The same is true for movies. And while rereading books and rewatching movies are not uncommon, that doesn’t prevent people from buying new books and movies.
Of course, if all the Kindle Fire did was let you read books and watch movies, it wouldn’t really affect the tablet industry all that much. But the fact is that the Kindle Fire will do essentially the same thing that other tablets do and in some cases will do it faster and perhaps better. It comes with a browser that supports Flash, and because some of the device’s processing is outsourced to the cloud, it’s very fast. It comes with most commonly used tablet applications, although there is still some lack of clarity on what exactly will be included. It will also come with backup storage in the cloud.
Perhaps more important, the Kindle Fire will work with all or most of the apps in Amazon’s app store. Again, we won’t know those details until the device hits the street. But one way or another, this is a true Android tablet, overlaid with Amazon’s new interface that’s designed to work well with (surprise) Amazon’s Web infrastructure. But the key is, it’s a tablet that costs less than $200.
Makers of other tablets will have no choice but to match Amazon’s price. By the time the Kindle Fire ships in mid-November, the impact will already have happened. Amazon started taking orders on Sept. 28, and sales appear to be brisk. Those sales of $200 7-inch tablets are sales that won’t be coming to Samsung, Dell, Viewsonic and others. I think we’ll start seeing new pricing by the beginning of October. But Amazon still has an edge-it’s making money by selling content. The other tablet makers don’t have that option. It’ll probably be a tough October for them.