Analyst slams Amazon's 'confusing' hardware strategy


Jeff Bezos

Michael Seto/Business Insider

Amazon CEO Jeff Bezos

Earlier this week, Amazon released a slew of new products, including a super-cheap tablet, two higher-end editions, and a revamped TV streaming device.


Although Amazon proudly touted the new devices as some of its best deals yet, not everyone was impressed.

In a note to investors, analyst Ben Schachter from Macquarie Research wrote the firm was "frustrated" by the company's hardware strategy, which it thinks "remains confusing" overall.

Macquarie is surprised at how little Amazon ties its $99-a-year membership shopping club, Prime, into its hardware efforts, beyond just making Prime content - like streaming music and TV shows or books - readily available on its tablets.

"We are frustrated that Amazon doesn't give Prime members even more benefits related to hardware (lower prices, early delivery, more exclusive content, etc…), nor does it aggressively drive HW owners to become Prime members (at least not directly)," Schachter writes.


Amazon's avowed strategy has long been to sell its hardware at break-even prices and then make money when people buy things on them. Amazon tablet owners tend to spend around twice as much on Amazon goods than non-owners do ($1,450 per year compared to $725), according to a Consumer Intelligence Research Partners study published earlier this year.

But Macquarie's point about Amazon not pushing hardware owners hard enough to join Prime might be true.

The percentage of people buying tablets who are already Prime members is "not as large as you'd think," SVP of Amazon devices, Dave Limp, told Business Insider during a product briefing. "We sell a large percentage of our tablets to non-Prime customers. A very large number. Do I hope that they'll become Prime? Of course. But they don't always. "

Still, even if tablet users don't become Prime members (who could spend more than double what non-Prime members do, according to the same CIRP study), Amazon is confident that they'll still spend a lot of money.

"Our thesis is that if they use the tablet, we gain our profitability from that - if they end up not buying more things from Amazon, or put their tablet in a drawer, then shame on us," Limp said.



Business Insider / Jillian D'Onfro

Macquarie's other frustration with Amazon was that it didn't talk about virtual or augmented reality at all. While other tech giants like Facebook, Microsoft, and Google all have some form of VR or AR wearable that they're working on, Amazon hasn't yet announced any projects.

Lab 126, Amazon's hardware division, recently laid of dozens of engineers who had worked on its ill-fated Fire smartphone, and Google snatched a few up for its own new wearable technology initiative, Project Aura.

"While we didn't expect anything from Amazon this year on VR/AR, we see most of the largest tech players on the planet moving forward and we expect AMZN is likely working on something," Schachter writes.

Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.


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