There are times while I’m reading through the days news (and using the term news loosely here) and I get some heebie jeebies. Yes, there is such a thing.
Part of the anxiety has to do with figuring out what’s what with the latest news cycle, because the information superhighway is as much a misinformation superhighway as anything. Here’s a case in point.
The Wall Street Journal reports that Amazon plans to sell a $50 tablet this holiday shopping center. Why? Amazon has been losing money on its tablets and smartphones for years. What’s with this race to the bottom?
Worse, tablet sales in general seem to have flat-lined (not as in dead, but as in no growth), so why would Amazon want to manufacture and sell a device that isn’t all that trendy anymore, a diminutive device with no profit?
Two words. Smoke. Mirrors.
Here’s what I think. Amazon’s CEO hasn’t figured out how to make much money while becoming the world’s largest online retailer, so to keep the stooges who invest in AMZN happy, Jeff Bezos trots out a new technology gadget every so often so investors think the company is all about technology, rather than what it’s really all about, which is selling stuff.
It’s a methodology that Google has used for years. Google. The search engine company that sells advertising has all kinds of high profile technology projects going on (self driving car, I’m looking at you), but the money still comes in the old fashioned way. Advertising.
Back to Amazon, the company that won’t tell anyone how many Amazon branded tablets or smartphones it has sold because the number is so low it would be a public embarrassment.
Company executives say that Amazon’s business model is different. By selling cheap tablets at near the cost of manufacturing, the company can make a profit by selling moves and TV shows and books to their owners. There’s not proof or history that such a business model works, but, hey, that’s what smoke and mirrors is all about, right?
What of Apple?
Our favorite Cupertino, CA Mac maker is an old fashioned business relative to the business models employed by Amazon and Google. Apple makes products that people want to buy and want to use. Apple is a hardware company. That’s where the real profits come from, though the company dabbles in streaming media, TV shows, movies, and books. Collectively, Apple’s trail to profits is transparent, obvious, and old fashioned.
But it works.
Amazon’s products are cheap because the ulterior motive of the online giant is to get you to buy more stuff from Amazon to use on the cheap device you just bought.
How’s that working out?
Amazon still won’t declare how many tablets– Kindles, Fires, or whatever– have been sold, so it’s safe to say, “Not many” which tells me the whole business model is there to prop up the company’s fortunes on Wall Street than it is to make money. There’s an old adage in the retail business. “Those who live by the price, die by the price.”
Here’s a good example of what happens to retailers who live by the price. Walmart. Yes, the company is huge, but profits are increasingly difficult to come by. Why? The race to the bottom of the barrel (where there’s litter and leftovers of other companies which have done the same thing and failed) is a race to poverty and oblivion.