No Amazon Isn’t Discarding Its “Sell it Cheap” Hardware Strategy

fire new tabletFor the past four years Amazon's hardware strategy has been to sell the hardware cheap and make money selling content and services. They've reiterated that strategy time and time again, but not everyone thinks that Amazon is sticking to it.

Writing over at Teleread, Paul Mackintosh argues that the new Fire tablet breaks with the pattern:

Currently, serious publications like International Business Times are running articles on the Amazon Kindle Fire 7 with subheads like “Loss Leaders.” They argue that: “Amazon is selling an ultra-budget tablet, at close to zero margin, banking on content to bring profits.” That’s such a false argument that it’s hardly worth the effort needed to disprove it. But I’m going to do so anyway.

All you need to do is look at the hardware shelves. Right now at Best Buy, you can buy a Zeepad 7-inch tablet for as little as $37.05. Or trade up a bit for an Ematic 7-inch tablet for just under $45. And at or just under that magic $49.99 price point you have a slew of devices at Best Buy, including a Haier 9-inch device, as well as the LG G Pad (admittedly under a price-match guarantee). Walmart, meanwhile, sells an RCA Voyager II tablet with Android 5.0 Lollipop for only $49.87, as well as Zeepads, Ematics, and FileMates at even lower price points. But what’s Best Buy’s Number One best-selling tablet? You guessed it: The Amazon Kindle Fire 7.

Point is, none of those no-brand device makers support their manufacturing margins with anything like Amazon’s ad platform and content ecosystem.

So is he right?

Well, I'll give Paul one point: Amazon hasn't actually said that they're keeping the same hardware strategy that they've used for the past four years.

So just to make sure, I asked and was told:

Our goal is to break even on hardware. We want to make money when customers use our devices, not when they buy our devices. This is why we work so hard to offer the best selection, the best features and the best prices on content.

So Paul is wrong, and to make matters worse his own links prove that he is wrong.

If you click through the links you will quickly see that none of the tablets Paul linked to can hold a candle to the new $50 Fire tablet. They all have weaker CPUs, lower resolution screens, poorer or missing cameras, less storage, poorer battery life, or some combination thereof.

Paul's own links prove him wrong; none of the $50 tablets are a match for the Fire tablet. It really is in a class of its own, which proves that the only way Amazon got the price so low was by subsidizing the price with the intention of making up the difference later.

Although, there is one tablet mentioned above that is almost the equal of the Fire tablet. But rather than proving Paul right, it proves him doubly wrong.

The RCA Voyager II tablet is an impressive tablet from a respectable brand that has specs on par with  the new Fire tablet - almost. It has the same CPU, screen resolution, and storage, but a weaker single camera and shorter battery life.

So no, this isn't the equal of the Fire tablet, and to make matters worse RCA says that this is an $80 tablet. Walmart is only selling it at $50 because they are subsidizing the price.

And that brings me to a related point: Amazon isn't the only company subsiding the price of their tablets.

I don't know that anyone else has noticed, but for the past couple years Walmart has been selling tablets under a business model very similar to the one Amazon uses with the Fire tablets.

Starting with the Hisense Sero 7 Pro, Walmart has been picking one or two good tablets a year, buying enough units to make them an exclusive, and then selling them at a subsidized price.

Do you remember how everyone was gushing over the Sero 7 Pro? It was an amazing $149 tablet when it launched in 2013. It had no equal at that price point, and with good reason.

Walmart was subsiding the price. At the same time, the retailer also bundled its apps (Sam's Club, Vudu, Walmart) with the tablet in the hopes that customers would buy one and shop more at Walmart. And yes, Walmart has also bundled the same apps into the RCA Voyager II tablet.

O O O

Folks, not only has Amazon said that their policy remains unchanged, the specs of competing tablets prove that Amazon is subsidizing the Fire tablets.

The fact that Walmart is using almost the exact same strategy that Amazon follows with the Fire tablet is merely the cherry on top.

About Nate Hoffelder (11576 Articles)
Nate Hoffelder is the founder and editor of The Digital Reader:"I've been into reading ebooks since forever, but I only got my first ereader in July 2007. Everything quickly spiraled out of control from there. Before I started this blog in January 2010 I covered ebooks, ebook readers, and digital publishing for about 2 years as a part of MobileRead Forums. It's a great community, and being a member is a joy. But I thought I could make something out of how I covered the news for MobileRead, so I started this blog."

20 Comments on No Amazon Isn’t Discarding Its “Sell it Cheap” Hardware Strategy

  1. “Sell it cheap” isn’t the same thing as “sell it at a loss”.
    And “cheap” itself has many meanings, ranging from “affordable” to “cheaper than Sony”. 😉

    If anybody wanted to speculate about Amazon changing strategy, wouldn’t the time to do that have been last year, with the intro of the Voyage?
    Or three years ago with the FIRE HD 8.9 LTE?

    • Well, the first Fire tablet was sold at a loss. But the second one was (probably) sold just above break even, and then discounted frequently.

      And you’re right about the Voyage, but probably wrong about the Fire HD 8.9 LTE. That tablet was cheap.

  2. You are wrong, how about you look at the other Amazon tabs not the 50$ one, they are hugely overpriced.And the comparison shouldn’t be with other US stores but with the costs.
    But its nothing new the strategy change a while ago.

    8 inch at 150$ , 1280×800, MT8135 , 8GB NAND and microSD, 5MP and 720p cams – give me a break at 150$ they could have used high res screen or 1920×1200 and more of everything else. Just because the other tabs are terrible products too, doesn’t mean this one is fine.

    10.1 inch tab at 220$ 1280×800, MT8135, 16GB NAND and microSD, 5MP and 720p cams – same here,low res garbage with an outdated SoC would be ok at half the price.

    One product well priced when all else isn’t doesn’t mean your logic stands.
    No idea what’s wrong with you, you always have to defend Amazon no matter how wrong you are. Fine you get payed by Amazon but drop the Fox News logic, it’s getting ridiculous.

  3. ‘Our goal is to break even on hardware.’

    Notice what they did not say – that they are actually breaking even on the hardware. My goal is to lose 15 kilograms this year, doesn’t mean I’m going to get there.

    As it is Jan Dawson investigated their hardware pricing strategy earlier this year and came to a rather different conclusion:
    http://www.beyonddevic.es/2015/01/05/amazons-changing-hardware-pricing-strategy/

    • @ Willem

      Thanks for the link, Willem. It’s an interesting read, but I’m not sure we can get anything from it. The price/date chart is wrong (I think). Wasn’t the Fire HD 6 launched last year, and not in 2013?

  4. Nate, the HD 8.9 LTE was a $500/600 tablet.
    It was cheaper than iPad but hardly cheap in absolute terms.
    Which was my point: it all depends on what cheap means.
    Cheap can mean entry level or it can mean cheaper than the competition.
    So before passing judgment you need to define the term.

  5. I think Amazon, more recently, have taken the route of offering very good value products that make little return (the Kindle Touch and the $50 Fire are examples). These devices, like the HP Stream 11, actually perform very good for their price; in the past entry devices, e.g. net-books, were seriously hindered and even unusable. However, the HDX series, Voyage and the current HD 8 & 10 don’t offer good value and I think Amazon is making profit on the hardware. Also, Amazon doesn’t seriously discount there devices at all. So, yes, there is now a strategy to introduce subsidised devices that offer excellent value for their price but this isn’t consistent across the board. What that link shows (Beyond Devices) is that you have this tier of entry level devices that offer all the functionality of the more expensive products (the article was wrong on functionality being hindered), with good enough functional hardware. I disagree with the article, as you get more than you pay for with these entry level devices and hence Amazon subsidising them.

    There are other mistakes e.g. Kindles only being significantly useful if you purchase from their store. I find the opposite to be the case – contra B&N, Amazon offer, exclusively, the best all-round experience and you can use their devices for your own personal documents and get similar functionality. Of course, Amazon is a behemoth, so it can invest in the infrastructure to offer these services (this applies to both tablets and e-readers).

    Finally, the Fire TV Stick and Fire TV are completely different devices to tablets and e-reader; yes, these devices aren’t really useful without a Prime subscription.

  6. Are you sure Wal-Mart was just “subsidizing” the price? Or were they leaning on their supplier to cut corners and build it more cheaply? It’s a well-known strategy Wal-Mart engages in, especially for expensive appliances. There is often a notable difference in quality between items like lawnmowers sold at Wal-Mart and the exact same make and model of lawnmower sold from a dealership.

  7. Sigh… Love that people who have never designed a product, managed a supply chain, or set product prices can tell us with absolute certainty whether or not Amazon is making money on their hardware based on checking retail prices for competing products. Spoiler alert: retail prices don’t perfectly reflect wholesale costs, especially on low margin hardware.

    Moreover, this entire discussion totally misses the point of Amazon’s hardware strategy. Grow up, people.

  8. @Basem: beg to differ on the FireTV and stick.
    They are hugely useful without ever dropping a cent on Prime.
    They are priced comparably to other, Prime-less devices, and offer more than fair value through free apps (Netflix, Hulu, Sling, HBO Now, Plex, VLC) and through sideloaded apps, most notably Kodi (nee XBMC).
    One piece of evidence for Amazon always making at least a modest profit on their hardware is that they have never closed the door to downloading and, on the FireTV and stick, they invite hacking by providing a switch to turn on ADB. Given how popular the things are with hackers, it is almost a certainty they make a buck or three even off the $39 stick.
    So far all Amazon hardware from the first Kindle to the latest FireTV can be used without paying Amazon any content fees.
    Of course, most people do spend on content but it isn’t required.

  9. @fjtorres – Yes, you are right but compared to Roku, for example, the choice is restricted. If it was just for the free to view channels or other services, then I would go with the Nexus Player or Roku. However, the Fire TV Stick is better than something like Chromecast, in my opinion.

  10. Compared to Kodi, Roku is restricted.
    Seriously.

    Not only do people buy Fire TVs just to run Kodi; people pay double list price for FireTVs with Kodi pre-installed.
    It’s an odd world out there.

  11. @Nate,

    Amazon’s hardware strategy is simple. It’s not about the hardware or the hardware prices. It’s about selling my wife paper towels. Seriously, Amazon is playing the long game of customer engagement. Here’s a thing that actually happened last night. There were a couple of people at my house and I was showing off my Amazon Echo’s goofy tricks. That lead to a conversation about Amazon and my guests brought up Amazon 1-hour delivery coming to Houston. Which lead my wife to fantasize about being able to buy fresh groceries, not just paper goods from Amazon. Normal people, like my wife and our guests, outnumber nerds and geeks 100 to 1. Amazon is happy to sell the Echo to gadget geeks like me, but we’re just carriers to spread the infection.

  12. So I started writing a response to this, then it got really long, and I decided to turn it into a TeleRead post instead. A bit surprised it didn’t show up in the trackback below the comments here.

  13. Thanks–we’ll see what’s cookin’ about trackbacks. Some Halloween gremlins? We do have WP set up for them. David

  14. Well,”set up” for the trackbacks, not the gremlins, although perhaps they can entertain us for Halloween. David

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