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.”

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.



Smash and Grab

Will competitive Senate contests in Kansas and South Dakota lead to more late-breaking races in future elections?

Stop Panicking. America Is Now in Very Good Shape to Respond to the Ebola Crisis.

The 2014 Kansas City Royals Show the Value of Building a Mediocre Baseball Team

The GOP Won’t Win Any Black Votes With Its New “Willie Horton” Ad

Sleater-Kinney Was Once America’s Best Rock Band

Can it be again?


Forget Oculus Rift

This $25 cardboard box turns your phone into an incredibly fun virtual reality experience.

One of Putin’s Favorite Oligarchs Wants to Start an Orthodox Christian Fox News

These Companies in Japan Are More Than 1,000 Years Old

Trending News Channel
Oct. 20 2014 6:17 PM Watch Flashes of Lightning Created in a Lab  
  News & Politics
Oct. 20 2014 8:14 PM You Should Be Optimistic About Ebola Don’t panic. Here are all the signs that the U.S. is containing the disease.
Oct. 20 2014 7:23 PM Chipotle’s Magical Burrito Empire Keeps Growing, Might Be Slowing
Oct. 20 2014 3:16 PM The Catholic Church Is Changing, and Celibate Gays Are Leading the Way
  Double X
The XX Factor
Oct. 20 2014 6:17 PM I Am 25. I Don't Work at Facebook. My Doctors Want Me to Freeze My Eggs.
  Slate Plus
Tv Club
Oct. 20 2014 7:15 AM The Slate Doctor Who Podcast: Episode 9 A spoiler-filled discussion of "Flatline."
Brow Beat
Oct. 20 2014 9:13 PM The Smart, Talented, and Utterly Hilarious Leslie Jones Is SNL’s Newest Cast Member
Oct. 20 2014 11:36 PM Forget Oculus Rift This $25 cardboard box turns your phone into an incredibly fun virtual-reality experience.
  Health & Science
Medical Examiner
Oct. 20 2014 11:46 AM Is Anybody Watching My Do-Gooding? The difference between being a hero and being an altruist.
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.