Bloomberg Businessweek
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Bezos won’t say whether he thinks he’ll lose money on the device itself, only that he’s at ease flirting with red ink. “Certainly this is a for-profit business,” he says. “Let’s put it this way. We are and always have been very comfortable at operating at extremely low margins.”
Although the decision to design and build its own hardware is a high-stakes bet, it’s equally true that Bezos had no choice but to enter the tablet business. About 40 percent of Amazon’s revenues comes from media—books, music, and movies—and those formats are rapidly going digital. Amazon was late to understand the speed of that transition; Apple, which launched the iPod in 2001 and iTunes two years later, wasn’t. The iPad has only strengthened Apple’s hold over digital media. There’s a Kindle app for the iPad, but Apple takes a 30 percent slice of all content that app makers sell on the tablet and has restricted Amazon from directing iPad users to its website in order to avoid giving Apple its cut. Doing business on the iPad threatens Amazon’s already thin profit margins.
Bezos claims he doesn’t think defensively. “Everything we do is driven by seeing opportunity rather than being worried about defending,” he says. Given Apple’s inroads into the media business, that’s hard to believe. Bezos is magnanimous toward Jobs. “On a personal level we have a tremendous amount of respect for Apple and Steve. I think that’s returned,” he says. “Our cultures start in the same place. Both companies like to invent, both companies like to pioneer, both companies start with the customer and work backwards. There’s a like-mindedness.” Pause. “Are two companies like Amazon and Apple occasionally going to step on each others toes? Yes.”
Amazon has recovered more quickly than other tech companies in the race to catch up with Apple in digital media. Amazon introduced an online TV and movie store in 2006, the Kindle e-book store in 2007, and the MP3 digital music store in 2008. Earlier this year, Amazon also aimed its sights on Netflix with an Instant Video streaming service that’s free for members of Amazon Prime, and it’s now spending hundreds of millions to increase its catalog with TV shows and movies from studios like Fox and NBCUniversal. The music and video stores haven’t been huge hits. That may change on the Kindle Fire. On a tablet those apps will give users the impression that most songs, TV shows, and movies are just a click away. “We are leaning into this,” Bezos says. “It’s not a small initiative for us.” Amazon is also among the companies in the final round of bidding for the online video site Hulu, according to people with knowledge of that process who were not allowed to speak on the record.
Apple’s success with the iPod taught the entire tech industry another valuable lesson. There were other digital music players on the market back in the 1990s, but Apple’s device, which seamlessly blended hardware, software, and eventually an online service in iTunes, made the experience simple and unintimidating for non-techies.
There is a sense, as one easily holds the Kindle Fire in one hand (try doing that with an iPad), that Bezos is working from the same set of principles as Jobs: Content matters. Simplicity is key. How do companies allow users to easily buy songs, movies, and other digital goodies? They persuade customers to entrust them with their credit cards—as both Amazon and Apple have done. How do they ensure that the device is easy to use? They design and build it themselves.
“What should Amazon be doing in 20 years?”
