Amazon has announced the rollout of an 8-inch Fire tablet for just 89 bucks.
If you’re wondering “how in the world can that be profitable,” Jeff Bezos knows something you don’t: the Fire is a Front End.
Amazon is NOT a hardware company; they’re not trying to turn a profit selling those tablets by themselves. Their model is to drive the cost of a tablet towards zero while monetizing customers with e-commerce (“Alexa, order more dog food”) and services like:
- Kindle Unlimited ($109.99 for six months)
- Amazon Prime ($119 per year)
- Audible ($14.95 per month)
Apple’s lowest-priced iPad is $329, almost 4x the price of the new Fire. This isn’t highway robbery; it’s a totally different strategy on Apple’s part. First of all, the iPad is objectively superior (in terms of tech specs) and should naturally be more expensive. Secondly: while the iPad does serve as a limited front end for the App Store and Apple Music and so forth, Apple is ultimately still trying to sell (more of) the iPad unto itself.
Amazon loses money if you only buy the tablet—but that’s the logic of the Front End. Amazon profits if you buy the tablet AND buy into their broader ecosystem of sticky subscription services (above), and especially if you use your Amazon devices to do more and more shopping on Amazon.com.
In simple terms, the Front End is the offer you use to acquire customers:
- It’s the free razor handle so Gillette can monetize the pricier blades.
- It’s free Gmail so that Google can monetize through advertising.
- It’s half-price nachos so the bar can sell more $6 Bud Selects.
- It’s a cheap 4K UHD TV so that electronics stores can monetize through installation, warranties, and other services.
- It’s free marketing training so that CRM providers can monetize through software as a service (SaaS).
If you’re having trouble generating leads and new customers, check your Front End. Do you have one? Does your market want it? Are you promoting it?
An important distinction: Acquiring customers is not the same as monetizing customers. The marketing tactics used to acquire customers are often not profitable at all (by themselves).
As in the case of the Amazon Fire Tablet, what’s profitable are services like Kindle Unlimited, Amazon Prime, and Audible which are sold to newly-acquired (Fire) customers.
How do you find a good front-end offer?
Often, the perfect front-end offer is hiding in an altogether-different business model. For example:
- Google monetizes with ads, but their front-end offer is free software and apps like Gmail and Google Calendar.
- HubSpot monetizes with software and apps, but their front-end offer is information products.
- Dave Ramsey is sort of the opposite: he sells information products, but his front-end offer is software and applications.
Next week we’ll talk about your Back-End Offer. Don’t. Miss. It. 😎