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Did Bezos Knock Apple or Android?

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At Amazon’s launch of new Kindle reader and tablet models last week, founder Jeff Bezos made interesting remarks about the way in which the firm has opted to eat some upfront costs and subsidize its hardware in order to establish a long-term customer relationship.

According to Seattle’s GeekWire, he said:

We don’t need you to be on the upgrade treadmill. If we made our money when people bought the device, we’d be rolling out programs left and right to try to get you to upgrade. In fact, we’re happy that people are still using Kindle Ones that are five years old. They’re still reading on them, and every time they buy a book, that’s good for us. That’s alignment.

If we made a lot of money when we sell the device — if we allowed ourselves to make a lot of money when we sell the device, we’d be tempted to use that Kindle bookstore to make sure you only buy our devices instead of working so hard as our teams do on interoperability.

GeekWire and others took this as a swipe at Apple, and I think that was his intent. But it falls flat. Apple has managed the hat trick of having high margins on its devices, like the iPad, while also having a long-term investment in the customer’s happiness, as Bezos professes. (For more on the new devices, read “Amazon Updates Kindle Fire with HD Display, Revamps E-Reader Lineup,” 7 September 2012.)

To the first point, the upgrade treadmill, that hits home much more closely to the Android ecosystem, which has multiple manufacturers producing new models seemingly monthly, even though the new models often run older versions of Android that lack marquee features, and older models are often incapable of being upgraded after even a single version release.

Apple, by contrast, has a three-to-five-year window of support for older equipment (iCloud compatibility aside!). I upgraded a 2007 Mac Pro to Lion last year, and Apple still sells the iPhone 3GS with iOS 5, and notes (at least at this writing) that iOS 6 will also run on the iPhone 3GS. (For a detailed look at the lifespan of Macs and iOS devices, see “Apple’s Planned Obsolescence Schedule,” 2 November 2011.)

I wrote extensively about the perception that Apple wants you to buy the newest “shiny” thing and the reality that it doesn’t necessarily in “Incremental Change Wins Apple Big Gains” (29 March 2012).

Bezos’s second point seems much more directed at Apple, insinuating that the firm’s closed hardware ecosystem for media is distinctly different from Amazon’s “open” one which provides both its hardware and software that runs on multiple platforms, including Mac OS X and iOS.

Bezos is being a bit disingenuous here. If he could have made Kindle a dominant platform before the iPad appeared, I don’t believe we’d see this broad availability of the Kindle app as he describes. And one could argue that while Apple sells media into its own closed system for iOS and Mac OS X, the fact that third-party apps can also offer streaming content (Netflix, Amazon, Hulu, and others), and even be embedded into the Apple TV might argue against precisely Bezos’s point. It’s also worth noting that none of the Kindle models will read standard EPUB-formatted ebooks without independent software (see “How to Download EPUB, PDF, and Mobipocket to the Kindle Fire,” 22 April 2012), and not all models can even read PDF files.

When I want to watch video on an iPad or a Mac, I have several choices. If I have a Netflix subscription, I may be able to stream it if Netflix carries the film, or I can rent or buy the movie from Amazon and stream it, or rent it or buy it from Apple and stream or download it, to name just a few. (I can also use Netflix and Hulu on a Kindle Fire, by the way.)

I don’t think Bezos’s remarks precisely hit home, but he has at least one valid point. The key element for me is choice in two forms (excluding music, which is now sold without protections):

  • Am I restricted from buying a particular kind of media to the company that makes the hardware or software on which I want to consume the media? Yes for Amazon’s non-Fire Kindles but no for the Kindle Fire (with some effort), and no to both Apple and Amazon for everything else. Provisos: You can email and load via USB certain unprotected ebook file formats, notably Mobipocket, onto any Kindle, and with an appropriate sideloaded app, you can read nearly any DRM-free ebook on a Kindle Fire. Apple allows competitive bookstores on the iPad, as well as unprotected formats, though restricts commercial titles created with iBooks Author to the iBookstore.

  • Once I’ve purchased media from a company that also makes hardware, may I play back that media only on devices made by the firm? No for Amazon, which has Kindle book and video streaming apps; no for Apple on the desktop with video, as I can use iTunes on a Mac or Windows for movie playback, but Apple allows books from the iBookstore to be read only in iOS, which is the only mobile platform supported for video sync or streaming.

I firmly believe that Apple should make its DRM-protected video and books interoperable across other hardware readers and software platforms, either by providing apps or negotiating the lifting of encryption as with music files, given that the DRM has little to no value in preventing piracy any longer, only in blocking legitimate uses. The question is if Apple wants to remove DRM, given that its primary function in today’s world is to lock customers into Apple’s platform.

Bezos is right: lock-in is bad, and while his system does not lock users into specific devices, it absolutely does lock you into the Amazon hardware and software ecosystem, thanks once again to DRM.

So neither company is being entirely open here, and while the book and movie industries may need to change their attitudes toward DRM first, it seems clear that the winners are Amazon and Apple, both of whom get to use DRM to lock users into their platforms. On the losing side are the publishers and movie studios, who are ceding a vast amount of control over their businesses to Apple and Amazon, and we users, given that our options for purchasing and interacting with media are restricted to a handful of companies.

 

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Comments about Did Bezos Knock Apple or Android?
(Comments are closed.)

Paul Schinder  2012-09-07 13:18
I've never understood why Apple hasn't released iTunes for Android yet. They make it for Windows, why not Android? Imagine being able to watch iTunes video on a Kindle Fire.
Sigivald  2012-09-07 16:00
Easy, because it's a bitch to do and wouldn't make them nearly enough money to be worthwhile.

iTunes for Windows does not exist to sell iTunes Store Content to Windows users; it exists solely and only to let Windows users support iOS devices (and iPods, but that's increasingly irrelevant).
Casper  2012-09-08 08:51
Which version of Droid would you like? There are many still being released in the zillions of cheap phones available.
Also, why would they? As many have pointed out, there's no margin in the Droid platform.
Nik Friedman TeBockhorst  2012-09-07 13:56
I'm unclear as to why you think Kindles are restricted to buying & viewing books from Amazon. (Assuming that's what you meant, that sentence is somehow deeply wrong...) Every Kindle, since day 1, has been able to read DRM-free files in a variety of formats, bolstered by Amazon's free document conversion service. ePub requires a separate reader app on the Fire (there are many), and there is at least one desktop program, Calibre, that can convert ePub for e-ink Kindles.
Glenn Fleishman  An apple icon for a TidBITS Staffer 2012-09-07 14:03
It's a specific statement I'm making (which I can tweak to make clearer) in response to what Bezos said. On the hardware device you may only purchase books from Amazon. Viewing, no, but it requires conversion and sideloading, even though it's not restricted (same with Apple's iBooks). I'll make this more accurate and clearer!
Cat Eldridge  2012-09-10 06:12
However iBooks will read any ePub or PDF without any trouble at all as I get dozens of such docs every month from publisher for review. What I can't read in iBooks is anything from Amazon or BN!
Nik Friedman TeBockhorst  2012-09-11 08:53
Not exactly true. Many third party booksellers (and book-givers) will let you deliver books directly to your Kindle through downloads, emails, or other methods. This even works on older e-ink Kindle's janky "experimental" browser. For that matter, so does iBooks, using the "Open In..." option.
George Slusher  2012-09-07 18:55
Try to buy a book from Barnes & Noble on the Kindle.
Bezos is being disingenuous in talking about open and closed systems. He freely admits the Amazon business plan is to sell Kindles at break-even to make money off the sales of content. Amazon has designed the Kindles (and the Fire) to push Amazon content over everything else. It is obviously possible to access the internet and other vendor sites but Amazon tries to control the experience as much as possible. I understand the reasoning but just because the fences can be jumped over doesn't mean they don't exist.
Jonathan  2012-09-07 16:13
What is the break even point for Amazon then. If they sell hardware at a loss and expect to make it up on content sales, how much does a user have to buy throughout the device's lifetime for Amazon to profit?

It seems like they don't want people to upgrade annually because the subsidy is essentially compounded with multiple devices (since content bought for a previous device went to pay for that subsidy).
Jeff Carlson  An apple icon for a TidBITS Staffer 2012-09-07 16:36
Good question. I'll bet it's not like a cell phone contract, where you're locked into a contract and you repay the value of the phone plus profit over time. Instead, the profit for Kindles comes out of the entire pool. You might not personally buy enough media to fulfill the cost of the hardware (although Amazon's claims about increased reading/purchases among Kindle owners seems valid), but there are no doubt other people who buy many more books/videos/games. You get a few million devices in the market, and it all adds up. Plus, since Amazon has been doing this for a while now, they probably get good pricing on components and manufacturing; maybe not Apple-good, but still good.
George Slusher  2012-09-07 18:57
"how much does a user have to buy throughout the device's lifetime for Amazon to profit?"

The real question is how much will people buy through the Kindle Fire that they would not have bought otherwise--i.e., ADDITIONAl sales. If Amazon only sells what it would have sold without the Kindle, they'll lose. (Actually, they are pretty much losing right now. Their profit margin and earnings are minuscule. Wal-Mart and Target beat Amazon in that respect.)
rccrd pl  2012-09-08 02:19
There is yet another crucial question:

How much content people is buying through the Kindle Fire that they would have bought somewhere else otherwise - i.e., avoiding loss of sales and raising of competiting platforms and channels.

The game is about mantaining strong control of the channel and owning the platform in the long term, rather than profiting with a blades&razors model in the short term.

It may take a big hit on the balance sheet now, but eventually the cost of low-end reading and media consumption hardware will become negligible, while on the high-end they could break-even or even make a profit; due to scale, improved design and manufacturing ability, and user satisfaction/brand recognition of the Kindle platform - as you can see, they've already started marketing high-end models with price points much closer to Apple's offering.
I'm not completely sold on Amazon's, no profit on the razor, we pray we'll make it up in razor blade sales, strategy. With the hardware specs that they have released (still waiting on battery usage on the KF HD 8.9) and the price point they have stated, I'm not sure they are selling them at cost. Add in the low cost 4G service and they are basically buying customers . People are going to have to buy an awful lot of content to offset the hardware and 4G plan subsidies. Since Amazon has also been known (particularly with books) to sell content below normal (maybe acceptable) prices it will take even longer to achieve profits with this strategy. And people like me that have a lot of content already aren't going to help them get to profitability any sooner.
If you look at Amazon's revenue vs costs (to yield true profit margin) their margins are razor thin by typical standards. Their P/E ratio is insanely high (315!! vs GE at 18.7, Microsoft at 15 and Apple at 16). The market believes (presumably) that Amazon is building territory and that profits will come. Bezo's claimed that they make money when people use their device, not when they buy it (unlike Apple). Are you suggesting he is lying?
Jim,

I would never accuse Jeff Bezos of lying. To lie he would have to have knowledge and intent other than what he has stated, and I have no way of verifying that he has contrary knowledge or intent. He may, however, be overestimating the expected result. This is a time honored tradition of salesmen.

While Amazon makes sales when users make purchases through the Kindle Fires, that is not a guarantee that Amazon makes money. And I can think of a number of ways to use the Kindle Fire, mostly for its intended purpose, without making any purchases, at which point even when I am using the device, they are not making money from me.
Tonya Engst  An apple icon for a TidBITS Staffer 2012-09-07 17:25
The true test of apple's "long-term" support will come after next week, when we see how long they will support the 3GS after they stop selling it.

My bet, if you buy one on a 2 year contract _today_, the full support will be shorter than your contract...
Kizedek  2012-09-08 02:45
If "support" means how many new versions of the OS you can upgrade to, then the time of your purchase is irrelevant : either the 3GS will take iOS 6, or it won't. Apple seems to be saying it will.

Likely, the 3GS won't take iOS 7, no matter when you bought it or buy it in the future.

If "support" means telephone and warranty type support, then you get the same as any other purchase. Again, time of your purchase is irrelevant.

If "support" means Genius support at an Apple Store, then you get forever, as with any other purchase. Again, time of your purchase is irrelevant.

Buying it today, your 3GS will function the same or better over the whole two years as day one (you will get the iOS 6 update). You will be able to download iOS 6 on day one even though the 3GS is like 3+ years old. That is long term support in anyone's book.

The true test of a reasonable person is to understand the simple facts above. No need to entertain some idea that Apple isn't holding up its end.
Glenn Fleishman  An apple icon for a TidBITS Staffer 2012-09-08 08:08
That's an interesting point. I was looking at the point of view of buying a phone model introduced three years ago (with relatively skimpy specs) that can run a new update to the operating system.
Tonya Engst  An apple icon for a TidBITS Staffer 2012-09-08 11:02
Yeah, I was thinking mostly software (OS, cloud and other) support from Apple.

And no, you are wrong, to the consumer, the time of release doesn't matter, what matters is when they buy it. If it is that bad and old to not update it 6 months later, then they shouldn't sell it, it's that simple.

Isn't that what we say about all the low-end android phones (high end is mostly released with the newest and/or gets updates)?
Kohan Ikin  2012-09-08 04:35
For another example of Apple's "long-term" support: if you bought an original iPad 2 years ago, it's already unsupported (won't run iOS 6). Bezos might be referring to this specific example, and targeting iPad 1 customers who feel slighted at the lack of support.
Glenn Fleishman  An apple icon for a TidBITS Staffer 2012-09-08 11:02
I found that disappointing, too, and it's one of the few lapses (along with not providing iCloud support or something for at least Snow Leopard users) in a long record. It's these lapses that are more pronounced, you know, because Apple generally avoids being irritating in this way.
Tonya Engst  An apple icon for a TidBITS Staffer 2012-09-08 11:05
That's an even better example. You can also buy iPad 2 _today_, and a week from now, it will stop getting updates.
Michael E. Cohen  An apple icon for a TidBITS Staffer 2012-09-08 12:34
Actually, iPad 2 will be able to run iOS 6 according to the Apple page here: http://www.apple.com/ios/ios6/
(scroll to the bottom)

So the iPad 2 will be getting updates a week from now...or whenever iOS 6 is actually available.
Clarke  2012-09-10 14:09
What do you mean by not getting updates. I own both an iPad 2 and the 3rd year iPad. It appears that overall I am getting updates on both with the exception of things that are particular to the newer device.

Clarke
Glenn Fleishman  An apple icon for a TidBITS Staffer 2012-09-10 14:20
A little confusion here. The original iPad can run iOS 5, but cannot be upgraded to iOS 6. The iPad 2 (2011) and 3rd-generation iPad (2012), all versions, may be upgraded to iOS 6 when it ships as a free update in the next few weeks.
Nokuchikushi Tekukuno  2012-09-07 19:09
After spending the last six months trying to get my music collection onto the Amazon Cloud Drive that I paid for (and not succeeding) and realizing their tech support department is inept and useless (and their software is awful - it just doesn't work), why would I buy anything else from Amazon?
Most owners of Kindles and Fire must be completely different customers than my wife and I. We've owned a couple kindles for years and have never purchased through the Amazon ecosystem. We get our books elsewhere and convert them via Calibre.
maeh2k  2012-09-08 02:23
I disagree. I think Apple is very much 'guilty' of doing these things.

treadmill -- They make most of their money from the high margins of their hardware sales and they understandably want people to buy new devices. When I look at Siri for the 4S and not the 4, or iMessage for Mountain Lion but not for the one year older version, I can't help but think that this is very intentional to differentiate the new products from the old ones and make them more attractive.

openness -- When you use Amazon's services, you are not locked into only buying Amazon devices. You can read those books from any device. Apple on the other hand, tries to maximize the lock-in to their ecosystem. For example, Facetime is only available on Apple devices. If someone uses Facetime, he probably won't consider a non-apple device for his next purchase. Now compare that to Skype.
Johnnyboy  2012-09-08 06:18
Are you suggesting that Apple stop releasing improved products? Stupid idea, no? New models aren't necessarily targeted at owners of last year's model, but no hardware company (nor Amazon, apparently) can afford to stop putting out new models. Bezos is playing the FUD card.
maeh2k  2012-09-08 06:34
Of course they should release new products and if those are enough of an improvement, people certainly can upgrade. However, on the software side Apple tends to focus increasingly on the newer models. If I'm informed correctly the beta version of iMessage ran on Lion, but for the final one you need Mountain Lion. To me that suggest that they hold it back from people with a one year old OS to focus on the new one.
With a service-oriented business model like amazon's, the company wouldn't care which version the customer uses and would try to support every version they can (with a reasonable amount of effort).

Seems to me like they've extended the treadmill through yearly OS releases.
Has Amazon announced that last years Kindle Fire will be updated to this years OS (since the original was forked from Android 2.2 and the new OS is forked from Android 4.0)?
Dan the Apple fan  2012-09-08 11:53
I'm amazed some people can turn the truth on its head so completely and find fault with even one of the world's most innovative companies, when their criticism essentially amounts to "Damn you Apple for continually improving your products at such a breakneck pace and making me regret buying the earlier model when the new one comes out a year later."

The fact is, one of the things that Apple "gets", and most of its competitors do not, about selling products that involve a sophisticated mixture of hardware and software, is that the way to maximize the value (and hence satisfaction) the customers derive from their hardware purchases is to ensure 1. Backward compatibility of software updates with as wide a range of past hardware as possible, and
2. Control of the software update mechanism to ensure that they are available to all eligible devices immediately on release and that the update is done as easily as possible.

Apple gets it. Android notoriously doesn't. I don't know about Kindle.
Dan,

You stated "The fact is, one of the things that Apple "gets", and most of its competitors do not, about selling products that involve a sophisticated mixture of hardware and software, is that the way to maximize the value (and hence satisfaction) the customers derive from their hardware purchases is to ensure 1. Backward compatibility of software updates with as wide a range of past hardware as possible,"

However this is not always the case with Apple. As an example the iPhone 3GS will be able to upgrade to iOS 6, but the first generation iPad (which has the same or better hardware specs) will not be able to upgrade. The main thought on this is that the 3GS is still an active product, while the 1st Gen iPad is not, but still, that isn't allowing backwards compatibility with the widest range of past hardware as possible in my book.
Glenn Fleishman  An apple icon for a TidBITS Staffer 2012-09-08 22:39
That's a plausible argument: the 3GS will be for sale, one expects, until the day that iOS 6 ships and perhaps dropped (in favor of 4/4S/5) thereafter.

By making the 3GS qualify for iOS 6, Apple is being fairer to people who purchased a 2010 model phone in 2012. The original iPad went off sale only early this year, however, and it has a more advanced processor and other features than a 3GS.
Dan the Apple fan  2012-09-08 23:12
James, as an owner of an embarrassing number of iPhones, iPads and Macs (including a 3GS and a first-gen iPad) I am fully aware that "this is not always the case". Just the other day I tried to update my 2006 iMac to OS X Mountain Lion, only to discover it is not supported. However, having been an Apple watcher, customer an investor since that first iMac purchase in 2006, I have learned to appreciate that Apple's philosophy truly is to try to maintain backward compatibility of their software with as many products, and to as large an extent (i.e. supporting as many new features), as possible. The only other value they will not sacrifice in the name of backward compatibility is that the user experience must remain up to their famously high standards. I.e., when a software release is not compatible with an older product, it is always for (what Apple deems to be) a good technical reason. People always find a reason to complain, but the fact is the "upgrade treadmill" simply doesn't exist.
SeaFox  2012-09-08 17:54
Regarding media streaming. Apple may make iTunes for both OSX and Windows, but iTunes is a piss-poor video playback program feature-wise. And let's not forget Amazon's Instant Video streaming available on all those third-party Bluray players. With Apple the only way to watch iTunes videos on you big screen is by hooking your Mac, your iPhone/iPod, or your AppleTV to your HDTV -- a much smaller number of devices and all "coincidentally" made by Apple.
Peter Evans  2012-09-09 18:23
I'm still surprised that Apple still doesn't allow iBooks to be read on a Mac. I get why they are pushing it as iOS only, but I'm thinking of the education market, where students just want, or can only afford one device - a MacBook Air say - and want to read text books on it as well as write/code/draw whatever. I'd like to see their analysis that not having iBooks on Mac (or even Windows) is a net loss...
Brian Steere  2012-09-11 00:21
Finding that our 2009 iMac wont airplay with 10.8 is a bit sad but maybe not surprising. But our two 2011 MBPro's cant use it either and that feels somewhat abandoned as a customer. I accept there are technical reasons, but read that 3rd party solutions can jump these fences - but maybe with a level of quality that Apple decides not to associate itself with(?)

Overall, an interesting article. I feel that issues of ownership, control, privacy, along with freedom of communication and exchange of information are at the root of human identity and therefore consciousness. This is being brought to the surface with our externalized and outsourced mind - aka 'The Net' or the Grid.

I recall Tolkien's story when it comes to the link between technos and power/control. Acting anonymously (privately) offers a free reign to explore one's thoughts and cultivate a persona thereby. But even a tyrant must needs a functional structure to persist. Conflicted thought loops/crashes.
No room to ramble on!
Here's another way to look at it:

Apple makes money when they sell what they manufacture. They do not make money (or at least as much) when they sell what other people make.

Amazon does not make money on what they manufacture. They only make small margins on what other people make.

The endgame is what happens when the studios and the labels stop using Apple or Amazon as middlemen.
Glenn Fleishman  An apple icon for a TidBITS Staffer 2012-09-13 15:22
It's a good point. Amazon doesn't want to be in the razor blade business, but sort of is. Apple makes money from the razors and the blades. It takes a 30% cut from apps, in-app purchases, magazine subscriptions, iBookstore sales, and movies and music purchased from the iTunes Store. That does amount to real cash, but it's tiny in comparison to the hardware profits.

Amazon is and has been always more like a supermarket. A deep discounter, it makes a few percentage points and has to sell a lot. Apple has high margins, and is more like an old-fashioned stereo store. It doesn't have to move as much to make as much (even though it's moving a lot).
Adam Engst  An apple icon for a TidBITS Staffer 2012-09-13 15:41
And while Apple doesn't make that much money on the content, they work very hard to keep the content locked into Apple platforms (some of that's technical - iOS apps won't run elsewhere, for instance, but other aspects are handled through DRM - movies and books, in particular). For Apple, the content is about making the hardware more attractive as an overall platform.