Apple and Amazon can be considered two competitors in the tablet market, yet the two companies offer varying sized devices. Apple obtains a majority of its profits from the ridiculously high priced devices on the market. Amazon tends to price devices low hoping to bank on sales of e-books, music, apps, etc.
Now who has the better approach? As a consumer I would choose Amazon because I have the choice to buy a tablet for just $159. But if you really dig into earning reports, Apple is obviously the leader.
Apple’s Profit Business:
Apple profits are in surplus of $100 per device sold. While an iPad may cost a consumer $499 to purchase, the production cost is just above $300 per tablet. The iPhone may sell for $650 without a contract, but the actual production cost sits at a measly $196! That is $454 pure profit for Apple– amazing.
Here is Apple CFO Peter Oppenheimer on the company’s profits:
“We’re thinking about the App Store in the same way that we think about the iTunes store. While it will generate some revenues, it will be a small profit generator, and just as with the iTunes store making iPods more attractive, we think the App Store will make the iPhone and iPod touch more attractive to customers. We’ll hopefully see an indirect return by selling more iPhones and iPod touches.”
Amazon’s Profit Business:
While being quite the opposite of Apple, Amazon virtually profits nothing per Kindle Fire device sold. Amazon has previously come public and stated they purely profit from virtual-sales:
“We want to make money when people use our devices, not when they buy our devices,” Bezos said. “If someone buys one of our devices and puts it in a desk drawer and never uses it, we don’t deserve to make any money.”
The chart featured above provides an easy look at which company has the better marketing routine. Even if Amazon sold more devices that doesn’t mean every user will spend hundreds of dollars on applications, e-books, etc.
During the span of the chart above, Apple earned $73 billion in profits while Amazon earned just $2 billion. Since the Kindle Fire’s release, it even looks like profits were down from the past year.