The other interesting thing I have picked up suggests that Bezos and his team are thinking about deploying a radical new business model for their tablets. First, to make the tablet's price really attractive to users, Amazon may actually sell it for as much as 20 to 25 percent below cost. In this situation, think of the tablet as a razor and the Android Appstore, UnBox movie service, and music service as the blades, which can be sold to users over and over again. As I understand it, the idea is to have users' purchases applied to the their tablet through a two-year amortized program that would cover any lost physical cost of the tablet as well as give Amazon some profit.
The first problem with this idea is that Gillette never actually used the razor-and-blade model in the way everyone assumes they did; it wasn't until after their patents expired (and they lost the lock-in the patents provided) that they used anything even remotely similar.
But the bigger issue with this idea is that it doesn't jibe with Amazon's existing business model. They've positioned themselves as the place to get free and cheap stuff: ebooks, MP3s, and Android apps. Why do you suppose they have a free daily app? It's because giving away someone elses content doesn't cost them very much. Go look at their ebook pricing model, and how much control Amazon have over pricing. Surely that wasn't an accident.
Amazon give away this digital content because it costs little to produce, but it also creates a mindset in some customers that you go to Amazon just for the free content (they're called freegans). When the "free Kindle" rumor was last bandied about, freegans were my objection why it wouldn't work. The objection stands, because it is just as applicable to tablets as it is to the Kindle.
It's actually even more applicable. With the Kindle there is a degree of lock-in that you simply cannot achieve with an Android tablet. With a tablet, there's really no reason not to buy your content elsewhere.
Sorry, but the captive audience argument just doesn't work.
To put it simply, giving away the expensive to get people to buy the cheap won't work. You won't make it the difference in volume.
image by Taifighta