They're not giving away the hardware. They're giving away a couple points of margin and making up for that after.

And with Amazon and other online shopping, consumer price sensitivity, and the ability to act on it, pressure is at an all-time high. There's a huge race to the bottom for all sorts of consumer goods.

Let's say total cost of manufacturing and distribution and service for the manufacturer is $50. Given two functionally identical products: if you were a layperson consumer, would you buy the product that costs 80 or would you buy the product that costs 100?

If the manufacturer can extract $20 of ad revenue from you, and you make the cheaper purchase up front, then it's win/win for the consumer (spent less), and the manufacturer (able to offer a lower price option and thus hopefully higher sales).

Well, "win/win" in a sense, I suppose.