Apple 2.0

Covering the business that Steve Jobs built

Why is Apple so cheap and Amazon so expensive?

September 11, 2012: 6:27 AM ET

"We want to make money when people use our devices, not when they buy our devices." -- Jeff Bezos

Click to enlarge. Source: ReadWriteWeb

FORTUNE -- The launch of the a generation of Kindles -- in particular the $299 Kindle Fire HD -- has sparked a reexamination of the difference between Amazon (AMZN) and Apple (AAPL).

Henry Blodget started it with a long Business Insider post entitled "Sorry, Apple Fans, Amazon Is Sucking The Profit Out Of iPads — iPhones Next?" in which he argued that Apple's enviable (and growing) profit margins are finally getting seriously challenged.

"The bottom line," he writes, "is that consumers will now have a full range of attractive options in the tablet market, many of which are priced well below Apple's premium tablets. This is a big change from two years ago, when the only tablet competition came in form of tablets that were both worse than the iPad AND more expensive."

SplatF's Dan Frommer followed up with a simple chart, produced for ReadWriteWeb, that summarizes the differences between Apple's and Amazon's approaches to profitability. Apple makes hardware in order to make money. Amazon makes hardware to get people to spend money in its stores -- stores that so far are only marginally profitable, at least compared with Apple.

Which leads us to the question Apple investors have been asking for years. If Apple makes so much more money for its shareholders than Amazon, why do Amazon's shares command such a premium on Wall Street? See chart below.

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Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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