[brc]

A tried and true strategy. That has worked for (in no particular order) : ATM's, Printers, Razors, Mobile Phones, Gaming Platforms and probably even cars in some cases.

If Sony had cottoned onto this strategy, Beta would have been the worldwide video standard and they would have been paid back massively in royalties.

Shifting hardware at a loss to lock in consumers is the oldest trick in the book. Nowhere is it more important than when introducing a new technology and a new way of working. I can see that in 10 years time a Kindle will be almost free.

[Hitchhiker]

Totally agreed.

"Well, since Moore's law makes computation really cheap, let's just give away the computation, but keep the data."[1]

[1] - http://edge.org/conversation/the-local-global-flip

[jsz0]

My understanding is Apple doesn't make all that much money off the iTunes Store using a similar model. Does it really work for digital media? (besides console games)

[ceejayoz]

Apple doesn't use a similar model, they use the exact opposite model. They sell content at minimal profit to enhance the ecosystem for their devices, which they make a very tidy profit on.

[jsz0]

How so? From what I've seen the prices on the iTunes Store for books, movies and music are higher than Amazon.

[gujk]

Maybe for music, but is that still true for the App Store?

[ceejayoz]

It's still pretty true for the App Store. Apple hit the $2B paid out to developers mark early this year, IIRC, which means about $1B of revenue for Apple for the entirety of the App Store's existence. Their latest quarter saw nearly $30B revenue, so it's still a pretty tiny part of their business.

[eitland]

Apps is a special case were they make a nice profit from both selling apps that they haven't created and selling devices that run said apps.

[kamkha]

Don't forget Amazon Prime -- Amazon, on average, takes a hit on the shipping costs when you sign up for Prime.

[chugger]

Its a tried and true strategy if there wasnt a better strategy. Amazon doesnt need to create their own hardware. They are doing just fine selling Ebooks via their iPad and android apps. Low overhead, more profit. Selling their own hardware does not provide any value add to the customers, all it does it reduce their margins and profit. People already buy ebooks via their apps.

People are talking like this is a good move by bezos. It's not.

[brc]

You obviously don't have a Kindle. I would never try and read an ebook on an iPad after having a Kindle. It is chalk and cheese.

Once you setup your account on your Kindle, it is 1-click purchasing to get yourself a new book.

Sure, you might shop around for an ebook, but most people aren't going to. They'll just search on the Kindle, click the 'yes I want it' button, and you're finished. Total platform lock-in. Tech people might get sniffy but to the average person it's like going from vinyl to iPod.

There are two Kindles in this household. Since their arrival, the yearly book spend has probably tripled. Previously most reading was re-reading older books and taking trips to book exchanges.

All this is possible with other platforms, yes, but the Kindle is just the physical part of an entire delivery system. The margins on ebooks has to be better than print by an order of magnitude, even though the price is lower.

[danielharan]

More profit selling for iPad and android apps is not a given. People that buy Kindles probably end up buying more books -- and there's also more lock-in.

[vidarh]

While the Kindle can handle ebooks from other sources, there's an Amazon logo on every one, and the 3G versions makes it so convenient to buy from Amazon that most customers probably won't shop around. For the iPad and Android they're facing off against a wide range of other players.

[glassx]

By selling Kindles, Amazon can secure their place in the ebook market. Without it they'd be just another player. And they probably get better margins on ebooks, since distribution (bandwidth) is cheap.

[ilamont]

It amazes me that they didn't do this for the PS3. Many tablet are making the same mistakes today.

[pg_bot]

The PS3 is the poster child for this type of tactic, at their beginning they sold for $300 less than their cost of goods.[1] Their failure has nothing to do with locking in a market due to price. [1]http://www.gamasutra.com/php-bin/news_index.php?story=11740

[ilamont]

It wasn't enough. They may have been selling at a loss, but the introductory PS3 prices were at least twice as much as the Wii. When Sony began to cut prices, sales jumped. A $100 price cut in 2009 doubled sales: http://kotaku.com/5356885/npd-ps3-sales-gain-ground-on-price...

[uxp]

If I also remember correctly, the Wii was the first modern console (post NES, I assume) that sold at a profit, which was a measly $6.

http://www.joystiq.com/2008/12/01/forbes-nintendo-making-6-p...

[bomanbot]

As far as I remember, Nintendo always did that, selling each console at profit, however small that may be, starting from NES, to Super NES, N64, Gamecube and now Wii (and I guess, soon WiiU).

So Nintendo was the only manufacturer who did not apply the "razorblade" model of the other console makers, which is understandable since they were and are a videogame company only and thus never had any other branches which could have been able to subsidize their console business in the beginning (unlike for example Microsoft).

I think the first console Nintendo made that actually sold at a loss is the current 3DS handheld and that may be after the very fast initial price cut after the slow reception on the market.

[gujk]

Sony's problem there was that the PS had very expensive parts, so they had a harder choice to make on pricing to be competitive.

Nintendo, meanwhile, couldn't keep Wii in stock for more than half a day until something like 2 years after launch, so they could have raised the price about $100 and not lost a sale