Analysts were not so happy with Amazon’s fourth quarter 2011 financial results, in particular the lower profit margins due in large part to spending to support the Kindle Fire effort. But Amazon has been pricing the Kindle Fire at a slight loss, in hopes of spurring more shopping on Amazon.com, including content products.
According to a new survey by Changewave, Amazon might have bet right. When Changewave recently asked tablet owners whether they planned to increase their spending on particular sites within the next 90 days, Amazon.com was the retailer that saw the biggest change in intentions.
About 20 percent of respondents suggested they might spend more money at Amazon.com, an order of magnitude more than at other major online retailers.
More to the point, 29 percent of Kindle Fire owners indicated they’ll spend more money at Amazon over the next 90 days, compared to 19 percent of non-owners. Spending intent seems to be higher for Amazon.com, across the board, but is significantly higher among Kindle Fire owners.
The considerable difference in planned spending between Kindle Fire owners and non-owners highlights the tremendous potential for additional realized revenue that the new tablet brings to Amazon, above and beyond initial sales of the device, one might argue.
We’ll have to wait and see whether that higher spending works out the way Amazon.com hopes. But the analyst and investor reaction points out how hard it is for a company to make strategic investments that lower return in the near term, for greater returns later.
It could be worse. Amazon could be a major telco, looking at huge fiber to home investments with a payback horizon of 30 years to 40 years. It’s not easy being a public company when long-term investments have to be made.