On October 27th, Amazon ran this play again in a big way, announcing the $39 Fire TV Stick. This strategy is alive and well.
Amazon is in the hits business. The company never reveals specific sales numbers for its Kindle and Kindle Fire products except in words like "best-selling," but Amazon sells tablets and ebook readers in the millions. Starting today, it probably has a third hit on its hands: the Fire TV, its new media streamer. And that’s no accident.
At $99, Amazon’s new set-top box will compete with devices like Apple TV, Roku, and Google’s Chromecast to be the gadget consumers use while cuddled up on the couch in front of their big flat screen. On one hand it’s an obvious move: Amazon has thrust huge resources behind its streaming-video service, which is of course the primary method of consumption on the Fire TV, and the company has always said that it makes money not when you buy a device, but when you use it (to buy things from Amazon).
Of course, lots of tech companies want to be the one selling you movies, songs, and TV shows. But Amazon has a huge advantage. Even as it presented the new device inside a faux living room in New York City, Amazon made clear why it’s building the Fire TV: it’s seen that everyone wants to buy a set-top box, it knows not everyone is happy with the one they bought, and it has plentiful data on exactly why. There lies opportunity.
Amazon knows both what people buy and how they feel about it
Amazon doesn’t innovate by crafting new product categories, like Apple does. It also doesn’t make much money selling its hardware. Instead, it takes all the data it gathers as the world’s biggest online retailer, breaks down exactly what’s available and what consumers want, then produces a piece of hardware that it can sell cheaply in order to bring consumers into its ecosystem. Just as Netflix created House of Cards to satisfy the particular tastes of its viewers, Amazon made the Fire TV because millions of buyers are already looking for it. To understand the Fire TV is to take one glance at Amazon’s best-selling electronics list: two Roku models, Google’s Chromecast, and the Apple TV are the only non-Amazon devices in the top 10. The world’s largest online retailer just took on all three.
If the device gets to scale (it’s already no. 1 on the best-seller list), Amazon will make money by using the Fire TV to sell everything else. That’s how it’s always done things. "We have a philosophy that we try to price our devices as close to break-even as we possibly can," says Kindle VP Dave Limp. "If they put it in a drawer, we’ve not benefited at all." Once the consumer has a Fire TV in their living room, he says, "somebody might buy à la carte content, movies, TV shows. Somebody might sign up for Prime... we want to be really aligned with the customer that we only make money when they use our products, not when they buy them."
All three of Amazon’s hardware product categories follow this strategy, particularly its tablets. Amazon enters a growing but immature market, sells good devices essentially at cost, markets them aggressively across its site (especially on the all-powerful homepage), and reaps the benefit when customers use them to buy other things from Amazon. With the Fire TV, which puts the Prime Video experience front and center as no Kindle device ever has, it's potentially a more lucrative idea than ever.
This sort of inside-out production isn’t without precedent. Years ago, before Samsung was a household name in consumer electronics, it was a key manufacturer of the internals for smartphones and tablets. The Korean titan learned the business from the inside out, and mastered the supply chain in an effort to make phones cheaper and more efficiently. Amazon’s experience is equally useful: it studies people’s shopping and usage habits, and gives buyers both space and incentive to report what they like and dislike. Its focus group is the entire industry, and it collects data before ever building a prototype. Amazon’s customer reviews said the Roku was slow; the Fire TV is fast. Customers complained about searching with a remote; the Fire TV’s flagship feature is the ability to find things to watch using your voice. Amazon doesn’t have to guess what people want, it just has to wait for others to get it wrong.
Amazon doesn’t have to guess what people want, it just has to wait for others to get it wrong
Limp says that Amazon’s been watching the set-top box market for a while, and that the company’s involvement started by identifying the problem. "We talked about the playing field, and one of the filters we use internally is ‘Do we want to use the boxes that are there?’ And then we went out and talked to customers as well, and they were frustrated." Putting the pieces together from there was easy. "We had the product in the labs for a long time, but as we started — as those dominoes started falling, as we started solving each one of those problems, I’d say about 18 months ago or so, we started feeling like we had a product. When you put it in your own house — and at this time they were still early versions of this — we just went ‘gosh, I want that.’"
There was a checklist for success, and Amazon followed it to the letter. And if the Fire TV isn’t what you want? Well, Amazon will happily keep selling you a Chromecast or Roku. Or a PlayStation or Xbox, for that matter. "We think [the Fire TV] is the best one out there," Limp says. "But that doesn’t mean people won’t buy other ones. There are other ones at different price points, there’s lots of selection, and we’ll see." And the best thing about being Amazon is that no matter how it shakes out, no matter which one you buy, Amazon wins.
Ben Popper contributed to this report.