The launch of Amazon’s new Kindles has already been analyzed to near death, so I’m not going to dive too deep in that general discussion. What struck me as interesting, though, was John Gruber’s analysis of the new models being US-only:
Production must be tight on the Fire and Touch models, as well, because they’re only being offered in the U.S. for now. The only new Kindle for sale outside the U.S. is the $79 non-touch model.
Now here’s the thing: it’s clear that Amazon is in the razor blade business. At $199, Kindle Fire either has a razor-thin margin or is sold at a loss. According to Piper Jaffray’s Gene Munster Amazon is taking a hit of $50 for every device it sells. If that’s the case, it must make up for that selling content, which is its bread-and-butter business.
However, selling content such as books, music and movies is also a low-margin business. That means Amazon has to sell a shitload of content to make up for the potential losses it makes with the Fire. Fortunately for Amazon, its customers are people who do spend a lot of money online – maybe second only to Apple. That’s probably the case only in US, though. International clients are likely to spend far less money on Amazon, because of narrower selection of books in their language, and because of movies and TV shows not being available, at all. As Horace Dediu points out:
The problem is that services don’t scale as well as products. Consider that none of the content streams that Amazon will depend on are available outside the US. The Kindle has not been a strong seller internationally. This is because book rights are limited to national boundaries as are movie rights and song rights. Apple has only this week finally completed the rollout of iTunes music to all of Europe! A process that took almost a decade.
So what if the production capacity isn’t the only reason for the new Kindle models being US-only? What if – given Amazon’s current production costs and international licensing deals – they just can’t see themselves selling enough razor blades to make up for the cost of the razor?