In the Wired interview Jeff Bezos: Why Is the Kindle So Expensive?, Mr. Bezos explains:
“…’We did consider [the cellphone model] for Kindle,’ Bezos said in an interview with Wired’s Steven Levy at Wired’s Disruptive by Design Conference in New York. ‘Instead of driving the cognitive complexity of a two-year commitment, [we] just tell people, “This is the actual cost of the device,” he said.
‘We sell a lot of cellphones for a penny, and you know, when you’re buying a cellphone for a penny, there’s got to be a catch — and there is’ in the recurring cost of monthly service which is free with the Kindle’s Whispernet service.
Still, if customers preferred smaller hardware costs and higher operating fees, he would still consider that approach. Bezos maintains that Amazon could have sold the DX for $99, but only with a required monthly subscription of $60 or more per month, or by forcing Kindle owners buy a certain number of books each month.
‘[The Kindle DX] is $489, and that is an unbelievably low price for something that has inside it a sophisticated computer, a completely new kind of display of that size, and a 3G wireless radio,’ Bezos said…
In addition to offering consumers a simpler value proposition, Bezos says charging a high initial rate without a monthly fee lets Amazon keep its Kindle hardware and eBook businesses separate, selling eBooks to Kindle owners as well as readers who use competing platforms such as the iPhone or competing standalone eBook readers, at the same prices it offers Kindle owners…”