Content is king, not because that's where the money is, but because that's what drives hardware sales.
Android tablets aren't successful primarily because:
- The Android UI is (was) a mess. Maybe Google finally got it right with ICS.
- There aren't many tablet apps in the Android market.
Even if we can write off #1 as a personal preference issue, most Android tablet manufacturers are faced with selling a device that's little more than a web-browsing and movie-viewing device for $500, if they are to make any profit at all.
As much as it seems like Amazon is happy to forego any hardware profit for increased content sales, I highly doubt that this is what their business model will always be. Amazon need only look at its current meager 2.5% operating margin to know that any potential increase in their electronic content sales generated from selling millions of tablets at cost isn't going to do damn thing to improve their profitability. IOW, content sales IS NOT intended to server as a subsidy for their hardware selling prices. Amazon is simply buying themselves into a market right now.
IMO, $199 price for the Kindle Fire is probably the lowest it will ever be, unless component prices come down so drastically that Amazon can get their bill of materials down to under $100. Amazon's plan is to build up their user base, and then start increasing prices on hardware to improve their overall margins. Just as it is now, content sales will continue to be low margin. That's just the nature of the beast.