Apple and Amazon are both in the business of designing small computers - tablets, ereaders, phones, media players - and selling them to the public. But how they do it is the big difference. And that's best depicted by the astonishing difference in the two companies' profits.
Amazon's Approach: Sell Now, Profit Later
Amazon CEO Jeff Bezos explained his approach last week at the company's Kindle press event.
"We want to make money when people use our devices, not when they buy our devices," Bezos said. "If someone buys one of our devices and puts it in a desk drawer and never uses it, we don't deserve to make any money."
Bezos clarified that he's not interested in selling devices at a steep loss - the razors/razorblades model. He is most interested in a business where Amazon makes a little money here, a little money there, and gives people a really good deal.
Amazon's mantra: "Above all else, align with customers. Win when they win. Win only when they win," Bezos said.
A little different than most companies? Yes. But that's okay: It certainly resonates with customers.
Apple's Approach: Big Profits From Small Devices
Apple generates profit - up to hundreds of dollars per device, especially for the iPhone - every time it sells a gadget. Its media ecosystem is there to support the hardware. In other words, iTunes and the App Store exist in large part to sell more iPhones, iPads, Macs, Apple TVs, and iPods.
As Apple CFO Peter Oppenheimer described on a 2008 earnings call: "We’re thinking about the App Store in the same way that we think about the iTunes store. While it will generate some revenues, it will be a small profit generator, and just as with the iTunes store making iPods more attractive, we think the App Store will make the iPhone and iPod Touch more attractive to customers. We’ll hopefully see an indirect return by selling more iPhones and iPod Touches."