Apple has stated many times, both publicly and via shareholder meetings that they make very little on the iTunes music store (not sure about the app store). But it's no secret that Apple developed the iTunes store as a way to sell more iPods. This is exactly the opposite of what Amazon is doing - taking a loss on the hardware in hopes of recouping that lost profit via sales of media.
One reference:
http://allthingsd.com/20100225/apple-billions-of-songs-billions-of-apps-not-much-profit/
Here's an interesting article from Reuters regarding Amazon's at-a-loss unit sales of the Fire and what it may do to its bottom line (as well as a discussion on potential manufacturing issues):
http://www.reuters.com/article/2011/09/30/us-amazon-supply-idUSTRE78T04220110930
From the article - "The rock-bottom price of the new Kindle Fire tablet computer is raising questions about Amazon.com Inc's ability to keep up with demand and the device's effect on the company's already razor-thin profit margins."
It should be interesting to see if Amazon can actually make a profit, especially given the Fire's tethered-to-the-cloud operation and lack of anything but wifi.
And as for the app store - yes, I know Apple only has one app store. I was making a comparison to other Android devices which are, generally, open to any app store (Google, Amazon, Handango, Mobihand, AndAppStore, etc.).
Basically, all the available apps for iOS devices are available on Apple's App Store. There is no other place to get them. For the Fire, on the other hand, if it's not in Amazon's app store, you've got no other way of getting an app that isn't offered there. And Amazon's app store doesn't have everything. There's part of the difference.
As I recall, there was much speculation in the business media that Apple had made a terrible mistake with the iPad when it was introduced. In fact, if the world has taught us anything over the last four years, or so, it's that the well informed business press is about as accurate in their assessments as the fortune teller in the strip mall down the street.
As far as whether Amazon can make a profit, time will tell, but suffice to say that I'm more inclined to trust Jeff Bezos' judgment than the Jim Cramer's of the financial prognostication world.
Interesting WSJ article on the speculated profit of iTunes. Especially interesting that it was written two months before the introduction of the original iPad. And this is an interesting little morsel from the same article in reference to Apple's claim that iTunes was only a bit more than a break-even business, "An alternate theory, held by some of Apples media partnersthe company was being overly modest about its success..." Not of course that Apple would EVER mislead their suppliers about the profit they make from the content they buy...No, not ever.
Finally, I'm a bit mystified by the following comment...
"...Basically, all the available apps for iOS devices are available on Apple's App Store. There is no other place to get them. For the Fire, on the other hand, if it's not in Amazon's app store, you've got no other way of getting an app that isn't offered there..."
How about this as an alternate wording...
"Basically, if it's not in Apple's App store, you've got no other way to get them. For the Fire, on the other hand, all of the available apps are available in the Amazon App Store..."
I think the problem is that you're confusing the fact that the Fire uses the Android
kernel with it being an Android device. It's not. No more than the fact that iOS is based on a unix kernel makes it a unix device. Amazon is not selling an Android tablet (much to the fury of Android fans.)
Furthermore, it appears that if the Fire
were a typical Android tablet, it would undercut the point you're trying to make. Easy availability of apps for the Fire from other sources (just like easy availability of apps for iOS devices from other sources) would make the Fire a less proprietary device. And if you're correct that Amazon is selling every Fire at less than their cost, the last thing they would want to do is to sell the devices to people who won't use their app store.
The bottom line is that the business models for Apple and Amazon are very similar. None of us knows whether Apple makes a dime from the sales of iPads. But if they do, the profit margin is, if not razor thin, at least paper thin. If it weren't you'd see other comparable tablets at significantly lower price points.
Amazon may or may not be taking a loss on the less costly Fire. But they also have a much greater opportunity for cross shopping in the entire Amazon inventory than Apple does with the iPad. (You can buy lawn furniture and even iPads from Amazon.) Furthermore, Amazon has a huge opportunity to build profit margins from their "Prime" service in delivering both digital content and free shipping of physical products to their customers via an infrastructure (both digital and physical) that far surpasses Apple's iCloud service at startup. I'm guessing that more than 80% of Fire customers will opt to keep their "free" Prime membership after a month.