“Most people think that Amazon is selling Kindle devices at cost in order to make a profit on the sales of books and movies. But if Amazon is also giving away a lot of media for free—4 of the Top 10 books in the Kindle Store can be had for free under the Kindle lending program—then what is its business model for Kindle?
Giving away the razor to make money on the blades is a well-known strategy. But giving away the razor and the blades in order to make money on a subscription loyalty program as a way to sell everything else? Is that Amazon’s real goal with the Kindle—is Amazon in the device business only to sell Prime subscriptions, which the company sees as a key accelerant for sales across the rest of its site?
…We don’t know where Amazon expects to make money from in the future. Indeed, we barely know where Amazon makes money from now. The company refuses to divulge even the most basic stats about its business. Amazon’s earnings calls are a comedy of opacity and misdirection; you’d have a better chance getting a guard at Buckingham Palace guard to crack a smile than to get an Amazon exec to accidentally tell you about the company’s business.
…But all this misunderstanding can’t be an unalloyed good. Amazon is so opaque, with so many mysterious businesses and revenue streams, that you’ve got to wonder whether the people who work there even understand what it’s up to. In business, simplicity often wins. Selling me a device to get me to buy a membership in order to get a book for free. Is Bezos crazy like a fox? Or is he just plain crazy? We have no idea.”
It costs a fortune to take up the market share that matters. Once it manages to do so, it can control the price and the market. The key is to survive till it makes profit.