Amazon is a great company. So is Apple. Although they both have content, ie iTune vs. Amazon, or tablet device, iPad vs. Kindle. the two companies culture are dramatically different. Their strategy to profit are different.
Daring Fireball’s Amazon’s Play has summarized most of what I wanted to say about this. So I’ll just quote him out right:
Apple’s goal is to sell as many iPads as it can. Amazon’s goal is to sell as many Kindle Fires as it can to a specific audience: active Amazon.com customers. And for that specific audience, it’s a very appealing proposition. The Fire makes it even easier to do things you’re already doing — reading Kindle e-books, watching movies and TV shows through your Prime membership. And the low prices speak to the heart of the Amazon.com customer base. When Bezos says he wants Amazon’s interests aligned with those of their customers, he means it.
It’s a heads we win, tails you lose strategy. That’s the brilliance. If you buy an iPad but use Amazon’s iOS apps to read Kindle books and watch movies through your Amazon Prime account, Apple wins but so too does Amazon. If you buy a Kindle Fire instead of an iPad, Apple gets nothing. Amazon wins so long as you consume media content from Amazon, no matter if you play it on a Kindle Fire or an iPad. Apple only wins if you buy an iPad.
ReadWriteWeb has one chart that shows the huge difference Between Apple & Amazon In One Chart.
Obviously, if short-term profit is all that matters, Apple is winning by a mile. Apple has generated more than $73 billion of profit over the span of this chart, while Amazon is around $2 billion. Some of that has to do with the relative size of the companies; Apple is about three times bigger, sales-wise. But Apple’s approach is still dramatically more profitable on a relative basis.
That said, there’s also merit to Amazon’s approach. By pricing its devices lower, it’s potentially bringing its technologies to more people in different economic positions. Apple has lowered its pricing premium significantly over the years, but there are still potentially millions of people who could justify buying a $200 Kindle Fire but not a $400 iPad. Apple is now expected to launch a smaller, cheaper iPad, something it once suggested it wouldn’t do – an action attributable in part to Amazon’s success.
Will Amazon’s approach ever lead to substantial profits? If Apple and Google are driving media and app prices lower, that leaves less room for Amazon to profit in the future. But Amazon is a multifaceted machine, ranging from digital media sales to paper-towel delivery. It’s possible that getting customers all-in on Amazon’s digital and Prime services will eventually lead to greater profits across the board.