"People don't want gadgets, they want services," Jeff Bezos has declared. This is the Amazon CEO's sleight of hand to diminish the value of gadgets, especially those that compete with his own Kindle family of e-readers and tablets. The services, and apps, make gadgets useful, so don't become blinded by the glare of shiny objects from Apple, Samsung, Google and others, he seems to be saying.
Bezos' "services, not gadgets" trope contrasts the more affordable Kindle and Amazon's massive online emporium with Apple's slicker and more expensive iPads -- the standard price of entry for the Kindle is $69 to $499 compared to Apple's $329 to $829 for the iPad -- and the iTunes store and 750,000 iOS apps.
The Kindle hardware is respectable, but as Bezos told Charlie Rose in an interview this month, its purpose is to mainline the "vast Amazon content ecosystem." The growing family of Kindles is a delivery system for the 22 million movies, TV episodes, books, songs, apps, wine, clothing, watches and other items that Amazon is trying to sell to its estimated 190 million customers around the world. The hardware, sold on a break-even basis, is basically a gateway to Amazon.
Profit is secondary to acquiring loyal customers and building a moat, with lowest prices, fast delivery and convenience, that rivals cannot easily traverse. So far, Wall Street is buying into Bezos' long-term view of his business, which is on track to generate $62 billion in sales this year with a tiny 2 percent margin.
How much of the $62 billion will come from the Kindle itself and associated sales? Amazon hasn't been very forthcoming with specifics about the Kindle business. The precise number of Kindles sold or how much business is generated per Kindle remains a secret. In Amazon's third-quarter 2012 earnings release, Bezos offered a crumb of data:
"And our approach is working -- the $199 Kindle Fire HD is the #1 bestselling product across Amazon worldwide. Incredibly, this is true even as measured by unit sales. The next two bestselling products worldwide are our Kindle Paperwhite and our $69 Kindle. We're selling more of each of these devices than the #4 bestselling product, book three of the Fifty Shades of Grey series."
So Kindles outsold the #4 bestseller. For some sense of scale, the E.L. James erotic novel trilogy has sold more than 30 million copies, but it's not clear how of that number were generated by Amazon. Apple has sold more than 100 million iPads to date, including 13 million last quarter.
Going by Black Friday shopping this year, Kindle usage is stunted compared to the iPad. Of the 24 percent of online shopping traffic derived from mobile devices, tablets contributed 11 percent. The iPad was responsible for 88 percent, and the Kindle, along with Barnes & Noble's Nook, just 5.5 percent, according to IBM's Digital Analytics Benchmark.
Bezos maintains his long view, however. "It's still day one, the alarm clock hasn't even gone off," he told Rose, adding that the rate of technology change continues to accelerate. The implication is that Amazon will double down on the Kindle in pursuit of more share in the growing tablet market, which NDP DisplaySearch projects at 275.9 million units in 2015.
And the rate of Kindle sales is accelerating too, apparently. Amazon said this morning -- after its fashion, without revealing actual numbers -- that the just-ended Cyber Monday was "the biggest day ever for Kindle sales worldwide." And over the holiday shopping weekend as a whole, Amazon said, consumers around the globe bought twice as many Kindle devices as they did during the same period last year.
The next frontier for Bezos in marketing his growing online empire is to shoehorn the Amazon ecosystem into a smartphone -- Amazon in every pocket. Currently, an estimated 1 billion smartphones are in use. Qualcomm predicts sales of up to 5 billion smartphones between 2012 and 2016.
An Amazon smartphone, rumored in the works for 2013, would follow the same break-even scenario as the Kindle, with additional subsidies by carriers, bringing the cost closer to zero. Like the Kindle tablets, a Kindle phone would be permeated with Amazon shopping, advertising and deals tied to the user's profile and other personalized data. But it would also be more than adequate for consuming media (a screen larger than 4 inches) and making phone calls.
In his conversation with Rose, Bezos said he doesn't believe that the "business mental model" is like sports competition. "Industries rise and fall...and in most cases there are multiple winners," he said. Nonetheless, he plays the kind of hardball in business that could make one think that he is intensely competing with rivals like Walmart or Barnes & Noble to be the ultimate winner.
Updated 7:23 a.m. PT:Added Amazon's declaration of Kindle sales for Cyber Monday and the weekend.