Amazon's New Kindle Will Have Thin Profit Margin

Sep 6, 2012
Originally published on September 7, 2012 2:29 pm



At a press event this morning in Los Angeles, Amazon unveiled its latest Kindle tablets and eReaders. As NPR's Steve Henn reports, it's unlikely Amazon will make much money selling these new devices, instead it hopes to profit when people use them to buy digital content.

STEVE HENN, BYLINE: Forrester analyst James McQuivey says, for Amazon, this business of selling tablets is a little bit like Gillette selling razors. It doesn't need to make a lot of money on the tablet itself. What Amazon is after are customers who keep coming back to fill these gadgets up with content - music, movies, books, stuff.

JAMES MCQUIVEY: Selling 10, 20 million people devices that keep you coming back to buy more products from Amazon really could be considered a marketing expense. If you're Amazon, you want people to have these things even if it means you only make a dollar or two or, in some cases, no money at all on these devices. And you can write it all off as marketing really.

HENN: When it launched the original Kindle Fire's most appealing characteristic was that it was cheap. It's biggest drawback was it was cheap. It didn't have a volume control or a camera. McQuivey says it's obviously time for Amazon to up its game.

MCQUIVEY: It has to make the devices as good as the service experience that it's offering.

HENN: So today, Jeff Bezos, Amazon's CEO, did just that.

JEFF BEZOS: We decided to go big.

HENN: Amazon unveiled a bunch of new gadgets, including tablet with a much bigger screen like the iPad. But Amazon is still pushing the envelope to keep costs down. It's eReaders start at $69. And for $499, which is the most popular price for an iPad right now, Amazon is offering a Kindle Fire that has all the bells and whistles, including a 4G LTE wireless connection. That super fast connection is something Apple doesn't offer - at least not yet. To sweeten this deal, Amazon is offering a data plan for just $49 dollars a year. Similar plans for Apple's tablets cost more than four-and-a-half times as much. But before you rush online to buy, you might want to wait. Apple is planning its own product announcement next week.

Steve Henn, NPR News, Silicon Valley.

SIEGEL: This is NPR. Transcript provided by NPR, Copyright National Public Radio.