The New Kindle Fire

A blog about business and economics.
Sept. 6 2012 3:35 PM

The New Kindle Fire and Amazon's Amazing Business Model

Amazon unveiled some new tablets today and damn they're cheap:

The new 7 inch Kindle Fire HD will cost $199 and will be available next week. The slightly larger version will cost $299 and ship on November 20th and yet another version, with 4G LTE wireless will cost $499 with a 49.99 per year data plan. “A year ago we were content to have the best tablet at this price,” Bezos said. “This year we want to have the best tablet at any price.”
Advertisement

By contrast, the cheapest LTE-enabled iPad costs $629. The LTE Fire is an inferior product along a number of dimensions to the LTE iPad, but there's no getting around the fact that this is a tremendous bargain. And, indeed, the Amazon ecosystem is full of tremendous bargains. That's in part because the company's run well, but it's largely accounted for by the fact that Amazon's profit margins are thin. And good for them. Thin margins are a huge win for consumers.

But what's weird about this is that Amazon doesn't seem to pay a penalty in financial markets for these thin margins. Their stock has a price/earnings ratio of 309. A more typical number for a mature firm would be Apple's ~15. Investors' willingness to assume that Amazon will have amazing earnings growth in the future lets it get away with relatively modest profits in the present. That, in turn, lets it offer great deals to consumers. And as long as you have no actual skin in the game, it's basically a big party. But will Amazon's thin margins really let it grow so fast as to justify that lofty valuation? Maybe! But it seems risky to me. And it's noteworthy that the company's Amazon competes with—traditional retailers, now hardware makers—are not assessed so generously and that itself becomes a factor in the competition.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

War Stories

The Right Target

Why Obama’s airstrikes against ISIS may be more effective than people expect.

The One National Holiday Republicans Hope You Forget

It’s Legal for Obama to Bomb Syria Because He Says It Is

I Stand With Emma Watson on Women’s Rights

Even though I know I’m going to get flak for it.

Should You Recline Your Seat? Two Economists Weigh In.

Doublex

It Is Very, Very Stupid to Compare Hope Solo to Ray Rice

Or, why it is very, very stupid to compare Hope Solo to Ray Rice.

Building a Better Workplace

In Defense of HR

Startups and small businesses shouldn’t skip over a human resources department.

Why Is This Mother in Prison for Helping Her Daughter Get an Abortion?

The Only Good Thing That Happened at Today’s Soul-Crushing U.N. Climate Talks

  News & Politics
Foreigners
Sept. 23 2014 6:40 PM Coalition of the Presentable Don’t believe the official version. Meet America’s real allies in the fight against ISIS.
  Business
Moneybox
Sept. 23 2014 2:08 PM Home Depot’s Former Lead Security Engineer Had a Legacy of Sabotage
  Life
Outward
Sept. 23 2014 1:57 PM Would a Second Sarkozy Presidency End Marriage Equality in France?
  Double X
The XX Factor
Sept. 23 2014 2:32 PM Politico Asks: Why Is Gabby Giffords So “Ruthless” on Gun Control?
  Slate Plus
Political Gabfest
Sept. 23 2014 3:04 PM Chicago Gabfest How to get your tickets before anyone else.
  Arts
Brow Beat
Sept. 23 2014 4:45 PM Why Is Autumn the Only Season With Two Names?
  Technology
Future Tense
Sept. 23 2014 5:36 PM This Climate Change Poem Moved World Leaders to Tears Today
  Health & Science
Science
Sept. 23 2014 4:33 PM Who Deserves Those 4 Inches of Airplane Seat Space? An investigation into the economics of reclining.
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.