Amazon.com, Inc. (AMZN) is the king of online retail, and has been in the U.S. for many years now. But increasingly, the Seattle e-tailer isn’t content to merely facilitate commerce — it wants to sell you stuff off its own, too.
That’s what’s behind Amazon’s recent all-out push to peddle its own devices and tech products to consumers this holiday season.
Some of the deals it’s offering will surely lose the company money — perhaps a lot of money — but it’s all part of a larger plan for AMZN to be the center of all things retail for years to come.
So what exactly is Amazon planning? Well, it’s slashing prices on two of its most popular devices, the 7″ Kindle Fire 8GB tablet and the Fire TV stick, by 30% to 40%.
Thee price cuts make these entry-level products disgustingly affordable … and open the door for consumers who may be temped by these incredible deals to continue making purchases from AMZN after they succumb to temptation.
Amazon Sacrificing Margins Again
The price of an entry-level 8GB Kindle Fire tablet with Special Offers will go from $49.99 to $34.99 — a 30% price reduction, beginning on Black Friday, Nov. 26. As if that weren’t enough, AMZN also announced that the company would pre-load an additional $10 worth of apps and games to the device, though the exact programs weren’t named.
That’s not all, though. AMZN also really wants you to have its Fire TV stick, a dongle that competes with the best-selling Google (GOOG, GOOGL) Chromecast. That device will fall in price by nearly 40%, dropping from $39.99 to $24.99.
So, what’s the point in facilitating all these killer deals if they don’t actually make AMZN any money?
Amazon’s sticking to its age-old strategy of shunning margins in the name of expanding market share. The goal is to turn the mass-produced Kindle Fire, which the company was already selling in six packs, into another avenue through which consumers can mindlessly place their next holiday order.
With the company also expanding into same-day deliveries and the local grocery market, AMZN wants to make shopping as seamless and simple as possible.
The Fire TV stick should also help drive more Amazon Prime members, as the company’s Prime Video service will be prominently featured. Amazon Prime Video is one of the main competitors to Netflix (NFLX), and with AMZN increasingly building out original content of its own, the company wants it to draw consumers to its website in droves.
And given the fact that AMZN outright banned the Google Chromecast from being sold on Amazon.com (supposedly because it didn’t play well with Amazon Prime Video), I’m sure this quarter will see a record number of Fire TV sticks sold.
So, at the end of the day, this effort should generate some nice revenue for AMZN, though it may or may not be immediately profitable for the company. I applaud Amazon for continuing to reject the quick, short-term profits that so often tempt Wall Street at the expense of a legitimately beneficial long-term strategy.
With the high-margin, high-growth Amazon Web Services division driving profit growth at AMZN, expect Bezos and Co. to be able to take more risks like this in the future. As an Amazon shareholder myself, I’m in it for the long-term … and I’m not complaining.
As of this writing, John Divine was long AMZN stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
