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Amazon’s low-margin device strategy is starting to show its flaws in the form of the Kindle Paperwhite.

In a statement released today, the company detailed some of the bigger concerns owners have had with its latest eReader, which include a lack of audio support and somewhat lackluster performance in low-light situations.

“Kindle Paperwhite is the best Kindle we’ve ever made by far, but there are certain limitations and changes from prior generations that we want you to know about,” the company wrote on its website.

Unlike with most electronics companies, Amazon is well-known for running its device business with some razor-thin margins. But less clear is how exactly the company manages to pull that off.

Amazon CEO Jeff Bezos, however, recently confirmed to the BBC what everyone had already assumed. “We sell the hardware at our cost, so it is break-even on the hardware,” he said on Thursday.

Translation: Amazon doesn’t make any money on selling its devices; the real cash comes from content sales.

This strategy, while a lucrative one for the company, has had some major consequences for the hardware specifications in the Kindle Paperwhite: Because it’s not making money on the Kindles themselves, Amazon has to cut costs elsewhere. One example is the Paperwhite’s onboard storage, which Amazon slashed to 2GB from the 4GB in previous models.

The same goes for audio support, the nixing of which allowed Amazon to cut costs further. While this may not be the biggest deal for most potential buyers, it does make the Paperwhite a bad choice for those who enjoy listening to their books rather than just reading them.

Whether these flaws will affect sales of the Kindle Paperwhite remains to be seen, but one thing is certain: Amazon isn’t likely to change its low-margin strategy anytime soon.

Photo: Devindra Hardawar/VentureBeat


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