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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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In this graphic, we've deliberately included a company you've probably never heard about, a Philippine handset manufacturer called my|phone. It doesn't make piles of money, but it doesn't need to. It's a perfect example of the regional handset manufacturers in emerging markets whose slim profit margins mean stiff competition for larger makers.

Amazon

Amazon, like Google, only makes money when you buy content on the devices it sells at cost.

Perhaps no one has been more vocal about the hardware vs. software subsidy than Amazon CEO Jeff Bezos. "We want to make money when people use our devices, not when people buy our devices," he told the BBC. In terms of its hardware, Amazon's Kindle Fire HD tablet is in the same class as Google's 7 inch Nexus. The difference is that it comes pre-loaded with Amazon's easy-to-use online store for movies, music, books, periodicals and games. You can use it to browse the web, as you could-much more clunkily-on the Kindle e-reader before it, but that's not really the point. It's a way for Amazon to make purchasing and consuming content as easy as possible.

Samsung

Samsung, like Apple, makes its money off hardware. As the largest maker of Android-powered phones, Samsung has essentially outsourced all of its content to Google, for which it pays nothing.

Samsung and Google are the Intel and Microsoft of the 21st century. In the mobile space, it would be difficult for one to succeed without the other. Samsung faces competitive pressures similar to those faced by HTC, Nokia and other makers of hardware powered by other companies' operating systems and content marketplaces; but because it makes the most sophisticated devices that use Android, it benefits from its reliance on Google rather than suffering for it.




No positions in stocks mentioned.
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