Sophisticated or not, will these new Kindle Fire tablets move the needle for Amazon any more than their predecessors? There's plenty of reason to doubt it. Last year's 7-inch Kindle Fire HD cost $199, 47 percent less than the $379 iPad mini — and had a higher-resolution screen, yet the iPad still outsold it. If Apple is true to form, it won't drop the price of the latest iPad mini when it comes out in a few weeks. It will upgrade the screen and add some more bells and whistles. Will the Fire HD do better against the iPad mini now that it's less than half the price?
As I push the point in an interview at his downtown Seattle headquarters, Bezos doesn't seem too concerned. You see, he's not selling these Kindles for cheap because he wants to outsell the iPad. While that would be a bonus it's not the overriding goal.
Bezos is selling Kindles for cheap because he wants people to use Amazon reflexively, and to spend lots of time doing it. "When people have Kindles, they participate more in our digital ecosystem. We have a big ecosystem of content, Prime Instant Video, the Kindle E-Book Store, music, mp3 store, games and apps and so on."
This seems crazy, because we're trained to think that physical stuff should cost money, but it's actually not crazy at all. Google can give away free search and maps because it knows people who use those services will click on ads. The Kindle's like that for Amazon; it's a distribution mechanism for Amazon's services.
(Read more: Amazon earnings: Good Kindle sales are bad for earnings)
The trick with hardware, though, is you can't fix it if you get it wrong. Google tweaks its search algorithm several times a week, and Amazon can adjust book pricing on the fly if something isn't selling. Make a piece of hardware nobody wants, though, and that's a fast track toward losing hundreds of millions of dollars. (Ask Palm about the TouchPad, or Microsoft about the Surface, orBlackBerry about BlackBerry.)
Then again, Bezos is used to playing high stakes. Remember, Amazon.com has a multi-billion dollar logistics operation all built on the bet that people will continue to want what Amazon's selling. "We don't make money when people buy these devices," he said. "We want to make money when people use our devices by buying Kindle e-books, buying movies and TV shows and music and so on."
That last part should be reassuring to investors: One way or another, Amazon is determined to make money.