While it's a great deal for the end user, Barnes and Noble may be selling them at a loss (or at least a very small profit) with the expectation of making up the difference with book sales. They probably don't stand to benefit from having the cheapest android tablet, with users who weren't specifically looking for an e-reader.
They almost certainly aren't selling it below cost. Rooting them has been common for months, and even if they can't stop it completely they could easily put up speedbumps like not unconditionally booting off the SD card. I'd expect they make a small profit even if you root it and never buy any books from them, and they're hoping that most rooters will. Which may be a good bet; I got mine a week ago and will be picking up some books shortly for an upcoming trip.
I have a Kindle and have considered a Nook because they're color, and travel guides absolutely suck and are pretty much worthless in low-res black and white (maps, for example, on a Kindle are unreadable and too tiny to even give vaguely useful details). Since I have an ebook reader because I travel full-time and can't keep more than a couple of physical books on hand at any given time, it's sort of annoying that I have to buy physical travel guides, and then give them away when I meet someone heading to where I've just visited.
I wonder how good the Frommer's and Lonely Planet guides are on Nook...
If they're selling the hardware at a loss, they're in even bigger trouble (as a company) than I thought. With rumors of the Kindle trending towards a price of "free", how can B&N possibly compete long-term? That's not a battle they can win, not against Amazon's scale and distribution network.
They're hedging their entire company on a product which their main competitor is going to start giving away. They'll need to make a lot from the sale of the books to make up for that.
Amazon's going on the same model though. I agree that B&N is crashing fast, but "sell at a loss, make up on books" is essentially the entire idea behind ebook readers. It is why the main competitors are coming from book stores, not traditional hardware makers.
It will probably turn out well for Amazon, but it's failed strategy for B&N to pursue. In those loss leader situations it's usually the biggest guy that survives, which doesn't bode well for B&N. Amazon is plenty diversified to outlast B&N and then capitalize on the empty competitive landscape once they've knocked the other booksellers out.
And yet Sony, Microsoft, and Nintendo all manage to do it regularly with games. I agree Amazon is set to dominate this market, but if B&N can figure out a way to leverage its brick and mortar stores in this fight, they could still be a solid competitor. For example, if they really embraced this and allowed people to browse around the store for a book, take it to the counter and buy the ebook and have the clerk put it on your Nook, they could continue to capture the crowd that wants to browse as well as expand the market to people who are more technology-phobic.
Actually, Nintendo dropped that strategy with the most recent console generation (Wii) and look to be doing the same thing with the 3DS (their new portable). Wii hardware was sold at a profit from day 1. They were the underdog compared to Sony and Microsoft, who can subsidize their console businesses with money from their more profitable core businesses.
The tradeoff they made was using significantly cheaper, lower-performance hardware, skipping HD and leaning on the uniqueness of the motion control tech to move units. It proved to be brilliant, and while Sony and Microsoft's console business struggled for years, Nintendo's been raking in the profits.
Unfortunately, the Nooks have tried to compete on hardware features and don't have any disruptive technology equivalent to the motion controls. The Kindle is the simplest, cheapest ebook reader out there, so if their competitors want to do a loss-leader strategy, they'll need a bigger subsidy than Amazon.
Sony does less of it that used to be advertised. They control most of their own fabrication, so while the PS2 and PS3 weren't profitable from day 1, they got there very quickly.
If they're selling the hardware at loss, they may turn profit once sales of hardware increase. Economies of scale == cheaper components, cheaper labor, cheaper distribution. Initial development costs spread over more units. At some point network effect and referrals kick in.
I should have phrased it differently as I have no familiarity with their margins. I just meant that I'm sure they priced it with future book sale revenue in mind.
I would have to think that if B&N is not selling the Nook for a loss, they're selling it for no profit. At $250 it's a lot more expensive than the $139 Kindle. (It's color, but how much of an advantage is that in a reader that will mostly be used for the equivalent of paperbacks?)
This is a razor/razorblade situation in a rapidly emerging market. If B&N is letting AMZN undercut them by even $1 more than necessary on the purchase decision that _defines_ which company a customer will buy their books from (and probably their next reader as well), they're idiots.
