Give the Razor Away and Sell the Razor Blades

The Kindle Fire has arrived. It’s a tablet computer that is being sold by Amazon and acts as a sort of electronic front-of-house to Amazon offerings and functions as an Android tablet computer. There are two interesting features of the Fire. The first is that it is cheap. Amazon has priced it assuming that it will drive more sales of books, DVDs etc. This is an example of the old sales strategy: ‘give the razor away and sell the razor blades’, where the profit was made on the latter. It’s an example of freebie marketing.

The second interesting feature is that it completes the transformation of Amazon from simple online store to a hugely vertically integrated company that publishes, sells and provides a shop window.  For an easy-to-understand description of what vertical integration catch this article in The Economist. Although it discusses the concept in terms of two companies integrating it can easily be applied to one company such as Amazon which grows upwards and downwards along the supply chain.  A year ago I was asked who were going to be the three giants of the early 21st century. I replied: Google, Apple and Microsoft. Amazon needs to be added to this list.

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