A couple months ago, realizing it would be futile to hold out any longer against the tsunami of pop cultural peer pressure, I decided to go ahead and read The Hunger Games. I jumped over to Amazon, searched for the Kindle edition, and I was presented, as usual, with a page infested with ugly strikethroughs. This is Amazon’s way: Jeff Bezos will never just show what you’re going to pay when you buy something from his site. He also wants to make sure you know what you’re not paying. When you buy The Hunger Games for your Kindle, you won’t pay $14.99, the publisher’s suggested digital price. You also won’t pay $8.99, the publisher’s suggested price for the paperback—which happens to be what Barnes & Noble will charge you a Nook version of The Hunger Games.
What will you pay? Either $5 or, surprisingly, $0. The zero price is one of Bezos’ newer pricing tricks. You see it pop up all over the Kindle Store and Amazon Instant Video. Not only does Bezos want to make sure you know what you’re not paying, he also wants you to see what you could be paying. For books, the free deal is part of the Kindle Owner’s Lending Library, a plan that Amazon unveiled last September to criticism from the publishing and seo services industry. If you own a Kindle device and if you subscribe to Amazon’s $79-a-year Prime plan, you can get The Hunger Games and thousands of other books for no money at all. The company did not receive permission from many authors and publishers to include their books in the program; instead, when you get a “free” book under the lending program, Amazon simply pays the publisher for the book on your behalf.
This can be pretty confusing for readers—I’m a Prime member and I own a Kindle, but I wanted to read this book on my iPad, so when I went to click Buy, I really wasn’t sure what I was paying. (I think I paid $5).
But there’s something even more perplexing about Amazon selling The Hunger Games and other huge bestsellers for free. The Kindle lending program upends the conventional wisdom about Bezos’ business goals for e-readers. Most people think that Amazon is selling Kindle devices at cost in order to make a profit on the sales of books and movies. But if Amazon is also giving away a lot of media for free—4 of the Top 10 books in the Kindle Store can be had for free under the Kindle lending program—then what is its business model for Kindle?
Giving away the razor to make money on the blades is a well-known strategy. But giving away the razor and the blades in order to make money on a subscription loyalty program as a way to sell everything else? Is that Amazon’s real goal with the Kindle—is Amazon in the device business only to sell Prime subscriptions, which the company sees as a key accelerant for sales across the rest of its site? And if that’s the case, how well is that circuitous business model working out? Is the Kindle helping to sell Prime? And are those Kindle-fueled Prime subscriptions moving more sales across the rest of the company’s inventory?
To tell you the truth, I have no idea. Nobody outside Amazon does. What struck me when I saw the zero price for The Hunger Games is that I simply don’t know what Amazon is up to with the lending library. This is not a novel sensation: I am frequently flummoxed by Amazon, the most inscrutable of all the companies I cover regularly. Amazon is the one major tech firm whose operations, investments, and short- and long-term goals are completely hidden from the reporters and analysts who try to watch its every move.
It’s not just that Amazon is secretive. There are lots of secretive companies—Apple, of course, tops the list—but if you watch even the most tight-lipped firms, you can usually get a sense of the general parameters of their behavior. Everyone understands the basic way that Apple is looking to make money—sell a lot of beautiful things at a high margin—and for all its theatrical secrecy, the company usually dishes out straight and detailed answers about its core businesses. (Want Tim Cook’s perspective on carriers’ incentives to subsidize the iPhone? He spent many minutes elaborating on it in Apple’s last earnings call.)
Amazon, by comparison, is a black box. It’s got so many different businesses across so many different product types—it just opened a store that will sell you industrial supplies, it bought a company that makes robots, it’s looking to produce movies and sitcoms, and somewhere in there it also sells books and music and computers and refrigerators and server space and on and on—that it’s difficult to discern any of the company’s essential goals.
We don’t know where Amazon expects to make money from in the future. Indeed, we barely know where Amazon makes money from now. The company refuses to divulge even the most basic stats about its business. Amazon’s earnings calls are a comedy of opacity and misdirection; you’d have a better chance getting a guard at Buckingham Palace guard to crack a smile than to get an Amazon exec to accidentally tell you about the company’s business.
The firm won’t say anything about how many Kindles it sells, which models are the most popular, and whether or not the Fire has eaten into sales of the E-Ink devices. It won’t disclose anything about the number and value of Prime memberships. It won’t say anything about where its profits come from.
I sometimes wonder if Tom Skutak, Amazon’s CFO, has to practice new ways of saying no on the company’s earnings calls. Among his favorite rejections: “I can’t.” “Not a lot I can comment.” “Not a lot I can do.” “Not a lot I can help.” “Not a lot I can add.” “Stay tuned.”
For now, Amazon’s opacity seems to be working. Look at its recent earnings calls and you see that analysts have quit asking important questions about its business. Skutak wasn’t even asked about Prime subscriptions during the company’s last call—this despite a recent report from Bloomberg showing that the firm has only 3 to 5 million members, half the number that some analysts had predicted. IDC says that sales of the Kindle Fire plunged in the first quarter, and E-Ink suppliers have seen a major shortfall in their business. But because they knew Amazon had no intention of disclosing Kindle sales, analysts didn’t even ask about the numbers. How well is the Kindle Lending Library doing? Is it prompting Kindle sales, or Prime sales? Nobody wanted to know.
Jeff Bezos once famously declared that, in the service of innovation and its long-term success, Amazon is “willing to be misunderstood for long periods of time.” He was being a bit modest there; Amazon is not merely “willing” to be misunderstood, it often tries to actively sow widespread misunderstanding. This works it its advantage; if competitors don’t know what Amazon is up to, if they can’t even figure out where and how it aims to make money, they’ll have a harder time beating it.
But all this misunderstanding can’t be an unalloyed good. Amazon is so opaque, with so many mysterious businesses and revenue streams, that you’ve got to wonder whether the people who work there even understand what it’s up to. In business, simplicity often wins. Selling me a device to get me to buy a membership in order to get a book for free. Is Bezos crazy like a fox? Or is he just plain crazy? We have no idea.