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I don't think you can compare a physical product with software like this. The incremental cost of goods of MS Home is a couple dollars; the incremental CoGs for

I don't think you can compare a physical product with software like this. The incremental cost of goods of MS Home is a couple dollars; the incremental CoGs for the kindle may be more than the $79 price. At the very least, a segmentation needs to cause CoGs to be covered (note that those CoGs might be covered by the more expensive kindle). Of course, engineering time needs to be taken into account to develop the segmented products. I don't think the $30 will be earned in ads, but the strategic value of a kindle or two in every house is big.

dpark 15y ago
Of course you can. It's the same economics whether the incremental costs are $2 or $80. You could make a comparison between the Kindle and the Camry the same way. Both exploit price elasticity by segmenting and selling nearly the same product at very different price points. It's irrelevant that the Camry's CoG is probably 200 times that of the Kindle. What's different about the Kindle vs Windows is not the CoGs. What's different is the indirect pricing. Amazon is willing to sell the Kindle for cost because they know they'll make their money in sales of books. Microsoft won't really make any extra money just because you buy Windows. (Windows 8 with the App Store will probably change that somewhat.) On the other hand, Microsoft sells Windows to OEMs very cheap, because there's value in having such huge market share.