And who cares if the profit margin is lower than Apple? With the volume Amazon does, I’m sure this will be worth their while.

Here is how apps work:

- 70% to the developer
- 29% to the server farm, credit card processors, marketing, customer service, App Store management, developer programs, etc.
- 1% to Apple

Music:

- 90% to the record company
- 9% to the server farm, credit card processors, marketing, customer service, artist programs, etc.
- 1% to Apple

I’m not involved in movies. Not sure how they work. But it is almost certainly the same.

With the amount of money Apple makes selling computers, that 1% of media sales doesn’t really add up to much. It could go away any time and you would have to dig through their financials to see it had happened.

With Amazon, they are selling Kindles at a loss. So the only revenue is from the media. The downside of this is that there is almost no money in media. People don’t want to pay for it. So Amazon squeezes the publishers and artists really bad. They have all these ways that they give your work away for free. Like they will offer to put you on the front page of something, but say that all sales from that page are free, they won’t pay you for them. The idea is that it is an ad that you pay for with your royalties. Apple just puts you into a promotion and you see a huge amount of money appear in your bank account unexpectedly.

One thing I have to say is I find it hard to argue with Apple’s method. People love to pay for hardware because they can touch it, and they hate to pay for software and content, even though that is the primary thing they really want from the device. So Apple made this software/content mix that the user carries with them from device to device, and in a sense, the software/content becomes part of the hardware. Now the user wants to pay for it again. They see that buying a music album means it goes into their persistent collection and it follows them around forever, always at their fingertips, on all of their devices. It shows the user that the music they bought is more valuable than the music they heard on a streaming service. It demonstrates why they paid for it in the first place. Also, with Apple managing the cloud storage, it is so much easier than bootlegging and so much higher quality, it makes bootlegging look like too much work.

What Amazon has done with Kindle Fire is extend the Kindle line upward into high-end media players (around $200) to compete with NOOK Color and iPod touch.

What Apple has done with iPad is extend the Mac line downward into low-end PC’s (around $500) to compete with Windows notebooks.

It’s very, very simple.

> Ipad = BMW Luxary SUV = 1x sales
> Kindle fire = Corolla/Civic car = 10x sales

No. Not only is that not true, but that idea is probably the most dangerous thing that Kindle Fire faces. If people buy it thinking it is a PC, they will be disappointed. If people buy it thinking it will be a media player, they are likely to be very happy with it.

The biggest problem that Android tablets have faced is users buying them to be PC’s and being disappointed that they are phones. And as many as 50% of them are returned, it is like wholesale slaughter. I have seen exactly 2 Android tablets in the wild, both in 2 different pawn shop windows in Silicon Valley of all places.

Here is how your BMW/Toyota idea really works:

• MacBook Air or MacBook Pro = BMW = 1x sales ($1000)
• iPad or Windows notebook = Toyota = 10x sales ($500)

• Kindle Fire or iPod touch = BMW motorcycle = 1x sales ($200)
• Kindle or iPod shuffle = Toyota motorcycle = 10x sales ($75)

We can see this working when we look at Apple and we see MacBook Air selling about 2 million per quarter and iPad selling about 10 million per quarter, but iPad is still new and it is growing faster than the Mac. In a year or 2 (if trends hold,) it will be 5 million MacBook Airs per quarter and 50 million iPads.

As much as Kindle Fire is more fun for techies, if you ask a Kindle user what they think, they are talking about how the Kindle buttons are better for page turning than touch, and how gray is better for battery life than LCD. It would not be surprising to see the $79 Kindle sell 10 times the Kindle Fire. Especially because the supplies of the gray screen are likely very plentiful, and the supplies of the LCD are probably not. Apple buys up almost all manufacturing capacity of the kinds of parts they use, and although they don’t use 7 inch screens, that is just half a 10 inch screen (they are measured diagonally, 7 inch is 46% of the area of 10 inch.)