No Amazon Isn’t Discarding Its "Sell it Cheap" Hardware Strategy
For 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.