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Apple, Google, and Amazon Are So Profitable Because They Know What to Lose Money On

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No company makes significant money from both content and hardware.

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To understand which firms are going to end up dominating the market for tablets and mobile phones, it helps to notice that we now live in an era in which every successful company selling hardware and content is giving something away for free. And the companies that can't afford to give something away for free are now competing with commodity manufacturers that could drive them into bankruptcy.



Subsidy-either of hardware by content, or content by hardware-is the common thread running through Apple's (NASDAQ:AAPL) iPad mini (due to be announced today), Microsoft's (NASDAQ:MSFT) move into hardware with its Surface tablet (due later this week), Nokia's (NYSE:NOK) slow demise, Amazon's (NASDAQ:AMZN) ascent, and the modest success of every regional Android handset manufacturer on the planet. It's notable that the successful firms have opted for either one model or the other: none makes significant money from both content and hardware.

Here are the implications for the biggest players:

Google

Google (NASDAQ:GOOG) practically gives away its hardware, in order to get users onto a mobile experience that it can control, and where it can sell advertising and continue to dominate search.

Google is selling its current Nexus 7 tablet at cost, and is absorbing the associated marketing expenses. For something that costs only $200, it's a fancy device, so it's no surprise that the company may have sold a million of them since they became available just three months ago. Google also levies no licensing fees associated with its open-source Android mobile operating system.




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