a fascinating thing about amazon is that they move inventory so quickly that they collect money from customers before they have to pay their suppliers—they have a cash float† they can actually sell products for a loss and still make money—especially if there is growth. it's like a ponzi scheme that actually works.

that said, maybe it will be amazon's bing, but bing buys microsoft insurance that may be much less costly to them than the risk of a google owned future.

my take with the fire is that amazon wants people to move from physical goods to electronic goods—they know that not everyone who owns a fire will consume their goods, but they also know that the more accessible the means to consume those goods, the more business for their core business—the one that makes them money, even if just for 20 days.

† http://www.usablemarkets.com/2009/06/18/amazons-float/

Amazon certainly makes money on Kindle Fire when you buy books, or music, or rent movies, but also, when you impulse buy anything from Amazon rather than waiting till you get back home and rethink it, or leave the library or class or work and stop at Target on the way home.

Moreover, Google (through Motorola) will soon make an as-good-or-better tablet at the same price point as the Fire. The Fire is a direct threat to Google's tablet ambitions, and Google has much more cash with which to subsidize tablets. In addition, Google has a monetization strategy (ads + content) which is better than Amazon's (content). Heck, even search ads alone is probably better than Amazon's content model. Amazon's ad. monetization is weak because they don't have a search engine nor a real locality ad. platform.

However, one way in which Amazon can make a ton of money on the Kindle Fire is to use their Silk browser to replace ads in search results and web pages on Fire devices. They can do this because Silk is effectively a rewriting proxy. Customers may stick with Silk anyway because the pages will load more quickly. There will be backlash, but Amazon may decide to do this anyway. Obviously, they would only replace a small percentage of the ads so as not to be cut off. Alternatively, they can use Silk data to better target Fire ads. to users outside of the browser, or with interstitials.

     They can do this because Silk is effectively a 
     rewriting proxy.

Technically they can, but it is probably illegal. And Google may not come after individuals that are using ad-blockers, or after shitty motels that are doing this, but you can bet your ass they'll sue Amazon and probably win too.

And it isn't only Google that Amazon should worry about in such a case -- if I'm a webmaster and the ads for which I'm getting paid for are going to get replaced by Amazon, I would be pretty pissed and I would probably block all Silk-related requests.

     Customers may stick with Silk anyway because 
     the pages will load more quickly

I somehow really doubt that Silk will translate in a faster user experience. Of course, marketing does wonders.

Agreed, ad. replacement may be derivative-work liability for Amazon; I don't think the case-law is clear.

But they don't have to directly replace ads. in order to monetize ads well. Because they have all of a user's browsing history with Silk, they can target ads. as well, or possibly better than, Google. Perhaps they show ads. at the bottom of the screen, or in the screen saver, or while web-pages are loading, or with location-based pop ups for coupons for a store just down the street, whatever.

In this respect the Fire is a direct attack on Google, and Amazon probably has to take this step in order to be able to subsidize this tablet as much as Google will be able subsidize their tablets. For this reason I wouldn't be surprised if Google soon cuts Amazon off from Android by making more of the OS closed source, and breaking app. compatiblity. If this occurs, expect Amazon to make a bid for Palm.

"I somehow really doubt that Silk will translate in a faster user experience. Of course, marketing does wonders."

As I understand it (that is what you call a disclaimer), Silk will operate in a fashion similar to Opera Mobile. Requests are routed to a proxy farm which transcodes and optimizes content for a known target browser. In Amazon's case, they have exceptional knowledge and control over that platform.

It's probably the one thing other than massive superior content that Apple might envy. :-)

For amazon, the tablet is a also way to get many people to subscribe to prime. prime users buy 3x-4x than normal amazon users. So they might have better subsidy model than google.

The future opportunities in controlling digital content and mostly e-commerce are huge.Wal-mart size huge.New prime customers really help amazon fight for those opportunities. Losing a bit of money on tablets is just small investment, nothing more.

The margins on folks who do buy Amazon content are probably pretty good, helping make up for those that don't buy any content. For example, there is a strong incentive to subscribe to Prime once you have a Fire, which not only brings in some good money but also encourages you to start buying things on Amazon.