It's long been suspected that Amazon
either sells its Kindle hardware at cost or at a loss, choosing instead to price its mobile devices aggressively and rake in the profits through content sales, such movies, music, and apps. With regards to the new Kindle Fire HD and Paperwhite models, Amazon isn't taking a hit on each sale, but it isn't making a dime either.
"We sell the hardware at our cost, so it is break-even on the hardware," Amazon CEO Jeff Bezos told BBC News
. "We want to make money when people use our devices, not when people buy our devices."
The CEO's comments highlight the unique position Amazon is in, and why it's so difficult for other tablet makers to compete with its low pricing. Only a handful of companies are in position to break-even on hardware sales and flip a profit on content consumption, which is what these devices are all about.
Amazon also makes money through its Special Offers program, which are basically ads beamed to the lock screen. The mega e-tailer views the Special Offers incentive as a win-win situation, providing the company with a source of revenue while serving up money-saving deals to Kindle owners. Customers who don't want to receive Special Offers can opt out of the program for a fee. For example, the new 7-inch Kindle Fire HD runs $199 for the 16GB and $249 for the 32GB, or $214 and $264, respectively, without Special Offers.