“Amazon on Tuesday revealed that it had very strong demand for its Kindle Fire tablet and Kindle Touch reader,” Electronista reports.
“CEO Jeff Bezos claimed that pre-orders were so strong that Amazon was bulking up production at Quanta to handle the load,” Electronista reports. “‘Millions more’ were being made, Bezos said. The claims cast doubt on how much Amazon is actually shipping but are consistent with Amazon’s habit of refusing to provide numbers. In the past, it has argued that revealing shipments would give up a competitive advantage, though they’re believed in the public at large to be attempts to avoid unfavorable comparisons.”
Electronista reports, “Its fiscal results for the summer supported the shipment spike as well as theories that Amazon was selling the Kindle Fire at a loss to build share. It made $10.88 billion in revenue, just below the $10.9 billion the market had predicted. Profit was also much lower: it made $63 million in the summer where it had made $231 million a year ago.”
Read more in the full article here.
Related articles:
J.P. Morgan: ‘We are not impressed with Kindle Fire’ – September 30, 2011
Oh, BTW: Amazon’s new Kindles are so cheap because they come loaded with ‘special offers’ ads – September 28, 2011
No, Amazon’s Kindle Fire is not an ‘iPad killer’ – September 28, 2011
Amazon announces 7-inch ‘Kindle Fire’ Android tablet for $199 – September 28, 2011
Selling at a loss for market share. That sums up the truth for those million upon millions of “sales”.
well said.
The “razor and blades” business model has a long and successful history. This is the model Amazon is using.
They aren’t going for “share”. All they are going for is that the buyers of Kindles buy enough media – books, movies, songs, whatever – that the profit from those sales more than offset the loss in the sale of the original device.
This is a totally different model from what Apple uses.
Just because it is different does not make it wrong. As for Amazon revealing their sales – if the SEC does not require it, why should they? Bragging rights? Sure. But remember they are in competition with Nook and other e-readers, so they may have valid business strategy reasons for not revealing those numbers.
Just because they work differently from Apple does not make what they do wrong.
The problem with this model is that Amazon is losing far more thanit can make up with some media sales. It will need YEARS of selling songs for $0.99 and renting movies for $4.99 to make up what it loses on the “razor.”
So the key question is how much content Amazon has to sell each Kindle buyer to make a profit? You say that Amazon is losing more than it can recoup in media sales, but you can’t really say that without knowing the numbers. Jeff Bezos is a smart guy who hasn’t built the Amazon empire by losing money. I don’t think Amazon’s tablet business is any threat to Apple, but I wouldn’t bet against Jeff Bezos in his own domain.
Android users buy the cheap tablets for a reason, they also don’t spend money on content, this is shown when you compare Android store sales to the App store sales.
Not quite the same as media content. I know, but Android users show zero loyalty to anyone and they will get their content from either the cheapest source, free sources or pirate it.
Funny thing… I have a Co-worker that is a RABID Android sufferer.
He was showing off his Angry birds for Android, explaining to me that he pirated it… so it’s better than the iPhone version.
(not his exact quote.. but it was inferred)
Went on to tell me of other apps he “acquired”, overheard him tell another co-worker that he would Root his droid for him so he could get the same apps free also..
then he plugged his crapdoid back into the wall to charge again.. (it’s been a full 3 hours since he had it plugged in!)
That is exactly how Bezos built up his empire, amazon ran a huge loss for years and years, only becoming profitable a couple of years ago. He was just another tech bubble goon spending huge money with the vague hope it would one day make a profit somehow without having any idea of how and when that might be.
The razor blade model is low margin, followed by years of high margin. The fire is huge loss followed by low margin. What is even worse is that the useful life of mobile products is only a couple of years anyway. So knowing matching iTunes prices is only break even, as iTunes is run at break even, then how in 2 years of selling content at break even going to result in making up for the initial loss?
You’re crazy if you don’t see that the fire is an act of desperation on Bezos part, as Bezos knows a shift to digital makes Amazon much less relievent, as the fire doesn’t make business sense. Digital distribution has become dominated by Apple mainly because by being a break even industry it is not a business worth being involved in. Apple sells I products to monitize iTunes, amazon funds a loss with break even content sales, they are desperate.
A shaver without a blade is useless. That’s why the business model can work.
But a Kindle Fire is useful without purchasing one bit of content from Amazon. They they seriously messed up their implementation of “razors and blades”. See also R Eunson’s comment.
Apple has the opposite approach. They sell the shavers for a nice profit while practically giving the blades away, and are leaving their “competitors” behind in the dust as a result.
So of course Amazon picks the wrong business model. And does it wrong, too. Even if the Fire sells well it’s going to more likely than not be a Microsoft-esque blackhole of money.
Also, the “razor and blades” model and selling at a loss to gian marketshare are two completely different things. The former can work(if you do it right), but the latter is suicidally moronic and nothing else. It isn’t marketshare that keeps a business running. Ask HP.
“Just because it is different does not make it wrong.”
Think about this for a second. Why is iOS so aggressively developed. How can Apple add Siri and other features that change everything?
Selling hardware at a loss will not enable Amazon to do this. At some point, us the customers need subsidize all these cool features, so yes, Amazon’s way is the wrong way.
It will be interesting to see how many of those “millions more” Kindle Fire units Amazon ships… I highly doubt they will ever release a number. Amazon will just keep claiming that they have sold millions and millions of these devices like they did with original Kindle. Even if they sale just two million of Kindle Fire this year they can claim we sold millions without giving a number.
pe of 100 says might be a good short
could tank to realistic levels like netflix shares
Looks like the Kindle Fire may be Burning a big hole in Amazon as well. I have to think if they considered a fire extinguisher for the accountants.
It may burn a short term hole (though I read they are making an estimated $50 margin on the fire) but if they get people locked into their eco system like Apple has, it generates long term revenue with list cost outside royalties. It’s really not a bad business model.
Are they making a $50 margin or are they making a $50 loss on margin? The difference is stark.
I believe I had read they are making a $50 margin.
I’ve read previously that it is thought to be a $50 loss.
iSupply estimates that the cost of components for the Fire is $210. In addition, there are administrative and selling costs, so about $50 loss per sounds about right.
(However, Apple has hinted that iSupply estimates are too low.)
If they have a margin of 10% per movie/book sold, They would have to sell $500 of content to break even.
Exactly. There is no way Amazon will make money on any Amazon Fire. They have at least several billion in cash though, so I guess their plan is to hang on by the skin of their teeth while building customer loyalty. Amazon is good to its customers, but they just don’t make that much money. Shareholders should eventually come to their senses.
Not to mention the cost of cloud web browsing.
Somebody should sue Amazon for unethical business practices.
And what exactly are they doing that is unethical?
How about suing someone for uneducated comments?
qka, like yours.
Vsp is entitled to there own opinion, seems like you are upset over what comment they made..
Get over it and relax.
No, qka is spot-on.
A shareholders revolt is more likely.
as usual all baloney. The kindle is not in their revenue yet so how could it have affected sales this past Q. Cost of goods only applies to units sold.
This just cover. Bezos knows that this isno longer amiable business and is all about the stock price. Amazon does not have the two hot ticket items for Christmas. The iPad and the iPhone.
Which a lot of us assumed they are doing. But at what point do they raise the price to profitable levels after having trained the customers only to pay the cheap one? This is not a good strategy.
Making $60m on $10b.
Not so great.
Yep, less than 1% profit on sales is pathetic. Even WalMart makes 3%, and they aren’t valued at a PE over 100. Amazon is a huge bubble waiting to be pricked. If I had guts, I’d have shorted it.
I really don’t know how these analysts or shareholders could ever imagine Amazon making enough to justify its share price. To do that, it needs to up its margins, and I’ve never heard anyone explain to me how they were going to do that.
The point is that Amazon has very, very little incentive to push the device or the Android OS. The Fire is simply a mobile storefront for Amazon. That’s why things like 3G, GPS, Blutooth, accelerometers, gyros and even the geek-arousing SD slots were left out and why Amazon is using an ancient, forked version of Android.
If Amazon even sells a couple million per quarter, it is very, very bad for Google and Android OEMs. They don’t have a store to subsidize their hardware yet Amazon is taking the Android OS/Hardware and ecosystem backwards. And Amazon can flip the switch on their Silk browser and leave Google out of the whole thing.
Remember Google’s welcome of Amazon to the Android ecosystem?
There wasn’t one.
Finally! Someone who gets it!
Spot on!
“geek-arousing” There’s a mental image I can live without.
Well, if Amazon sell the Fire here in the UK using Apple’s Dollar to GBPound calculator then all of Amazon’s woes will be over.
But, of course, we in the UK are not allowed the Fire yet.
The loss on hardware pales when compared to the costs of developing the apps and ecosystem. How much would they have lost if they also had to develop the OS from scratch!
Just as net book buyers thought they were buying a full fledged Windows computer, Amazon Fire buyers think they are buying an iPad.
Buyer’s remorse will once again sweep the nation.
10BB revenue and only 0.063BB profit. That’s a whooping 0.6% net profit margin.
That’s bad. Amazon are going to be in a world of hurt soon. Hopefully Xmas will be good for them.
my prediction is that once the kindle fire is gonna drop like a lead albatross.
Once it is out and gets terrible reviews and everyone realizes it’s not a low priced iPad, Amazon will be stuck with a glut of Fires in the channel. To be a fly on the wall at the next shareholder meeting – or in on the next earnings call…