Yes, the ereaders and tablets that are so popular they have allowed Amazon to sell more ebooks than printed ones in countries like the UK and US are actually not where the company makes its money. In fact, according to CEO Jack Bezos, Kindle and Kindle Fire sales just about cover the cost of their manufacture.
Speaking to the BBC at the launch of the new Kindle Paperwhite in the UK, Bezos explained Amazon’s business model. “We sell the hardware at our cost,” he said. “It’s break-even on the hardware. We’re not trying to make any money off the hardware. We want to make money when people use our devices, not when people buy our devices.”
It’s been speculated for a while that Amazon is more concerned about building a multi-faceted ecosystem than profiting off the markeup on gadgets — Bezos said in a recent interview that the company doesn’t follow the business model where the goal is to “make a lot of money on the device”. But no money at all from the sales of the company’s tablets and ereaders? That’s an interesting plan, especially when sales drive revenue for many gadget manufacturers.
Bezos said that Amazon is more interested in the long-term income it can generate from sales of games, movies, music and books than from once-off sales of a tablet or ereader. “The continuing relationship with the customer is where we hope to make money over time,” he said. Think about it: Amazon’s devices are created with the Amazon store in mind, and the company’s stats show, for example, that Kindle owners are reading more books than they were before they bought the ereader. Why? Probably because they own a device which allows them to browse the store, purchase an ebook with one click and start reading it seconds later, regardless of the time or their location.
But the increase in book sales doesn’t seem to be limited to Kindle ebooks, according to Bezos. “When people buy a Kindle, they read four times as many books as they did before. But they don’t stop buying paper books… they continue to buy both types of books.”
Bezos briefly explained Amazon’s service-not-products philosophy at the Kindle Paperwhite launch in September, saying “People don’t want gadgets anymore. They want services that improve over time. They want services that improve every day, every week, and every month.”