A report Friday that the Kindle Fire costs a few dollars more to make than its $199 selling price is drawing renewed attention to Amazon’s adherence on the “razors and blades” theory. That theory has been around for a long time and has been much discussed with the rise of new technologies over the past few decades. Whether it will work for Amazon is an open question, but the odds may be against it.
The razor blade idea is a myth. Gillette only started selling razors cheaply after it has lost patent protection. It is hard to make it up in blades when everyone’s blades fit the razor.
The company cannot force people to buy only its expensive blades if they can buy cheaper equivalents.
Amazon hopes to get people to buy so many more ebooks that it makes up for the loss on each tablet they sell. I’m sure they have run the numbers but I really do wonder what the overall return will be.
They cut their profit margins and their P/E ratio is still almost 10 times what Apple’s is. What a crazy world.