What happens if AMZN actually makes a phone and sells it at very low margins because they can? I wonder if this will cause tremendous pressure on all cell phone vendors. AMZN seems to have the ability to sell everything they make at nearly 0% profit and then make it up by selling what others make - i.e. books etc. I have bought way more books on the Fire than on the ipad or anytime before. So, their biz model allows for razor thin margins but apple's doesn't. You're right, Sandeep, that Amazon's business model allows them to sell something like the Kindle at a loss, and make up the difference on books or whatever.
I'm don't believe that same strategy would work with phones, however. Smartphones have not proven to be popular as book readers, probably due to the smaller screens. But even if Amazon does get into the phone business, Apple wouldn't be in trouble. You can presently get an iPhone for free when you sign up for a 2 year contract, which leaves Amazon nowhere to go in undercutting Apple on price.
As we've seen, more people are willing to pay a few hundred bucks more to get an iPad than are seduced by the low price of a smaller, stripped-down tablet like the Fire. |
