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.
