Amazon's Bezos: We don't make any money on Kindle

And here's the original BBC article, which is even better: http://www.bbc.co.uk/news/technology-19907546

As long as they reinvest most of the money they get and come up with new innovations, which Amazon has done so far, I find no problem with that. In fact, it's the ideal situation for consumers, and it would be great if all companies did that, instead of keeping tens of billions in their bank account, while charging more than necessary to consumers.

I'd agree except that it's fairly well established that Amazon doesn't make much money from the content either.

They are trying to grow marketshare and build the ebook market, but investors should know that Amazon has razor-thin margins on content and no-margins at all on hardware sales.

Exactly- the box is simply a sales channel. Mobile phones could be thought of the same way, but people are still willing to pay.

So first of all, it doesn't say they're selling it below cost, and they are engaged in an overall razor-and-blade strategy that is profitable without the need to drive competitors out of the market. So factually, maybe not predatory.

In general, you would have to prove that Amazon has so much power in the market, and the market is so hard to enter, that they are likely to recover their losses from low prices now by charging higher-than-competitive prices later, without competitors coming in and undercutting them when they change strategies. Otherwise low prices are good for consumers and antitrust has nothing to say about it.

That said, Amazon already has a ton of power over book publishers, and they are trying hard to extend that power. If I were an antitrust regulator, I'd be trying like hell to make a case against them. But it would be tricky.

I voted you up, but I don't think so. Some worthwhile pieces to read and contrast --

Loss leaders (common to almost all retailers):

http://en.wikipedia.org/wiki/Loss_leader

The razor-and-blades business model, made famous by Gillette:

http://en.wikipedia.org/wiki/Freebie_marketing

Compare that to predatory pricing --

http://en.wikipedia.org/wiki/Predatory_pricing

Predatory pricing is most possible when a large profit systems-based company can run a loss in one area to destroy competitors to the system. For instance, British Airway cutting rates on a New York <-> London flight to very cheap if a new carrier emerges to challenge them, even losing money on the route while having the rest of the airline subsidize them.

It'd be possible in air travel, because the gains are potentially huge. Airline seats are incredibly perishable, so the additional revenue from flying with a more full plane is very worth running short-term losses to get, and by keeping the general route fares high it could help them a lot. Also, because there's limited airline landing slots, they won't necessarily face constant competition -- if the competitor goes bust and someone like BA can buy their airport slots, they've further entrenched their position against future challengers in multiple ways -- they've got the landing slots, and financiers saw the previous company go bust, making it more difficult to get capital.

How does that differ from razors-and-blades or loss leading? I think it comes down to intent. Discounting, taking no gain, or even a small loss to win a consumer's attention and business seems worthy, especially when developing new markets. Discounting strictly to destroy competition, with the intent of raising prices very quickly after the competition goes bust -- that's more out of line. A quick acid test might be, "Would this be a viably pursued strategy if there was no competition?"

And with legitimate loss-leading, you could say yes. Someone will go to a liquor store more off if there's a cheap decent beer or wine on sale, regardless of competition in the area. People would potentially buy more disposable razors if the initial package of working razor comes in at a cheap price point, so it's easy for new people to try it out. Likewise, the Kindle.

All of these strategies establish market positions and gain market share, which is obviously somewhat to the potential detriment of would-be competitors (...well, unless it grows the market more than grabs market share...) -- but loss leading or razors-and-blades seems to focus more on attracting the consumer than bankrupting the competition.

What about Whispernet? I've downloaded books to my Kindle in the middle of seemingly nowhere over whispernet. Do some models not have access? That would be most unfortunate.