
Amazon's gadget as a service theme: Hardware becomes irrelevant soon - iProject
http://www.zdnet.com/amazons-gadget-as-a-service-theme-hardware-becomes-irrelevant-soon-7000003851/
======
tferris
From business perspective right and nothing new: printer manufacturers, video
game system manufacturers, telcos and many more do this for years—building a
base where they earn money when people using their stuff rather than buying
the initial setup.

From user's and ecosystem perspective it's wrong and leads to bad user
experience: proprietary and closed systems, gatekeeper controlling the
'market', limited to no competition within the proprietary ecosystems.

I don't want this and look back at that days where businesses made money from
selling systems following or creating open industry standards.

~~~
dmix
Noone's stopping competitors from launching platforms with open standards. The
only factor is the content producers/app developers will go to where the most
money can be made or where they can reach the largest audience.

The users will ultimately go where there's the most (or best) content/apps.

So the business models of the producers is the deciding factor.

~~~
damian2000
And for an example of this look no further than Nintendo - selling a hardware
platform (Wii, DS) on razor thin margins, but selling the games at a
significant markup. Their inability to compete with the low priced smartphone
apps is a big challenge to them.

------
kevinconroy
An interesting development in the tablet market, but hardly a new business
strategy.

Cell phone companies have done this for years. Cheap iPhone + high monthly
contracts with 2 year lock ins.

But before them, video game console companies did it. Sell console with razor
thin margin (or in XBox's case, at a loss), and make it up by selling lots and
lots of games.

But before them, Gillette (and others) perfected and honed the idea by
practically giving away razors and then selling you the blades. I got a Mach 3
in the mail days before my 16th birthday (which is another story of amazing
data mining in the 1990s), and they've hooked me into buying those stupid
blades for the last 15 years.

Bezos is no idiot. He's applying well known business models to his market now
that he knows he can achieve the necessary scale.

~~~
rootedbox
The problem with the complimentary goods model is that it depends on a certain
amount of proprietary between the complimentary goods. But what happens when
someone makes a complimentary good that is interchangeable, and breaks the
proprietary; and then undercuts your price.. You are screwed racing to the
bottom of profit margins with a competitor, and then you have 2 items which
are low margin.

~~~
notatoad
It depends on either proprietary lock in, or a service integration so good
that you don't want to buy the content anywhere else.

I'm perfectly capable and willing to pirate any ebook I want to read, but most
of the time I just buy them in the kindle store because it is so much more
convenient. Amazon doesn't have to race to the bottom on content pricing
because their services have value.

------
unobliged
It may not be the case that services are the end game, but rather that there
is a trade-off due to organizational structure and capital investments needed
to sustain a product-focused company vs. a service one. As revenues from one
type of model dry up (e.g., majority of people have your product), the
investments needed to sustain that type of company structure have less
marginal value or may even be a drain. Simply put, there are always
diminishing returns to any strategy and there may exist a middle ground that
maximizes revenue.

Related to topic, Professor Cusumano at MIT wrote a good paper covering this
exact topic back in 2008 which covers additional historical cases dating back
to the 90's. A lot of what is happening now follows logically from that
analysis.

I couldn't find a direct link since it was an IEEE paper (pay to access), but
found a copy here (if bored, skip to page 6 on the pdf): [http://www.iae.univ-
lille1.fr/SitesProjets/bmcommunity/Resea...](http://www.iae.univ-
lille1.fr/SitesProjets/bmcommunity/Research/cusumano.pdf)

