Online retail giant Amazon understands that in order to make money it has to spend it. Underscoring that axiom, the Seattle, Washington-based company is losing money on its Kindle Fire tablets – and executives could not be more content.Amazon chief executive Jeff Bezos has cultivated the company from a tiny startup that analysts said was doomed to fail when it priced its initial public offering in 1997, to a global behemoth and model of effective supply chain management. Under Bezos, Amazon has invested heavily in the development of new technologies and in new facilities and warehouses.
While investors once worried that its business model was unsustainable and that it spent too heavily on new technologies and distribution facilities, Amazon has continually outperformed analysts' expectations. While the retail firm has spent a substantial amount of money over the past decade, its return on investment has been staggering.
Take, for example, its Kindle e-reader. Amazon was one of the first companies to launch such a device when it unveiled the first iteration in 2007. Bezos is notoriously tight-lipped about how much the company spends to create its product offerings, but analysts contended the company was likely losing money on the devices.
Nevertheless, Bezos understood that by placing an Amazon-branded e-reader – and now tablet – into consumers' hands, he was effectively bolstering future revenue. Amazon may have been breaking even or potentially losing money by manufacturing the gadget, but it more than offset such losses by consumers purchasing new books through its online retail store.
That, in a nutshell, is the genius of Bezos. The Kindle has gone on to become the market leader among all e-readers, and Amazon has continually reduced its price. Kindle owners are automatically tied into Amazon's e-commerce site with the device, which makes buying new items as seamless and intuitive as a few clicks on its keyboard.
Analysts assert Amazon is likely losing money with its latest tablet offering, but once again Bezos is more concerned with long-term growth potential than an initial slump in profits. By constantly reevaluating its strategic sourcing and procurement services, Amazon can implement business cost reduction initiatives to help offset the temporary squeeze on its profit margins.
The Kindle Fire will likely prove more lucrative than its predecessor, according to experts, because its tablet users will have access to millions of additional product offerings, including music, video and gaming services. The bread-and-butter of Amazon's business is its core e-commerce site, and by directly delivering content to its customers it is profiting significantly.
Released late this year, the Kindle Fire is selling very well already, Bloomberg reports. The tablet, which sells for $199 in an attempt to undercut the $499 price tag of the cheapest iPad, has ranked as the best selling product on Amazon's online retail site since it debuted 11 weeks ago. What's more, Amazon executives noted sales of the Kindle Fire have climbed week-over-week for the past three weeks.
Bezos warned investors in October that Amazon could post a drop in fourth quarter earnings because of its aggressive spend management campaign. However, Amazon executives believe the Kindle Fire will more than pay for itself in the long-term, especially as sales accelerate.
An analysis from research group IHS Inc. concluded Amazon is likely losing money on each tablet it sells. On the other hand, Susquehanna Financial Group researchers affirmed that each Kindle Fire would generate on average $384 in revenue for Amazon, underscoring the strength of its online store.
Though Amazon has quickly gained a formidable following, it still has a ways to go before it challenges Apple's dominant iPad. IHS projects Apple to sell 18.6 million tablets in the fourth quarter, giving the company a 66 percent market share. IHS forecasts Amazon's Kindle Fire to control 14 percent of the segment in the quarter.
Post A Comment:
0 comments so far,add yours