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Estimate: Amazon Kindle Fire sold at $10 loss to build share

updated 02:30 pm EDT, Sat October 1, 2011

IHS says Amazon Kindle Fire costs 210 to make

Amazon's Kindle Fire is being sold at a loss to heat up competition with Barnes & Noble and Apple, IHS iSuppli estimated Friday. Based on a list of known and expected components, it believes the seven-inch mini tablet costs $209.63 in raw parts and manufacturing, or about $10 more than its $199 asking price. A high-quality IPS-based LCD at $87 is a large part of that cost, while adding the dual-core TI OMAP processor and other mainboard components pushes it up by another $70.40.

The company is likely taking the same strategy it initially took for e-paper Kindle readers and for the e-books themselves, where it knowingly took a loss expecting to make it back on content. Amazon is pushing its $79 yearly Prime subscription and its unlimited movie streaming as a core selling point. Also, virtually every app, book, movie, and music sale through the Kindle Fire will come through Amazon, further contributing to its bottom line.

IHS estimated that Amazon might be making a $10 profit on each Kindle Fire after factoring in the content owners are likely to buy. That number could climb higher for very frequent shoppers or for those who own the tablet for a long time. The strategy is unprecedented in the tablet arena and mimics that of physical retailers, where customers lured in by one product sold at a loss end up compensating the store by buying considerably more.

"With Kindle, Amazon has created the most convincing attempt at this yet, and it is doing so by using established retail tactics: deploying content to get shoppers in the door, and then selling them all sorts of other goods," researchers said. "This is exactly how Walmart, Target and others use a similar weapon -- in their case, DVDs. If doing this means that Amazon must take a loss on the sales of digital content and tablet hardware, it will be well worth it in the end."

The approach is expected to most threaten Barnes & Noble. While it too can make back any hit to the Nook Color's profit margins through content, it only really has its e-book store where Amazon has a whole media ecosystem to shop from. Apple likely isn't concerned as it sells with an opposite focus. iTunes, the App Store, and the iBookstore all operate at slightly above break even and are ultimately there to drive sales of iPads, iPhones, and iPods, where most of its profit margins exist.

Like most, IHS interpreted the Kindle Fire as more of a "super e-book reader" than a true tablet. It won't compete directly with the iPad as a result but, for that reason, may be more successful than many tablet competitors.



By Electronista Staff
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Comments

  1. slapppy

    Fresh-Faced Recruit

    Joined: Mar 2008

    -2

    Competition?

    A product that can't even generate revenue for it's own existence is considered a competing device in the market? LMAO. Another X-Box, Zune, BING, Android OS business model.

  1. macnnoel

    Fresh-Faced Recruit

    Joined: Feb 2005

    +7

    Is it because...

    The money ain't on the hardware, but the ecosystem?

  1. kerryb

    Fresh-Faced Recruit

    Joined: Aug 2001

    +13

    I think Amazon know's

    what they are doing unlike all those other Droid tablet manufacturers. I smell a success in a niche with a product that does what it intends to do and does it well, give credit to Amazon.

  1. ggirton

    Fresh-Faced Recruit

    Joined: Nov 1999

    -2

    Let's get real

    unless a tablet offers photo stream management that is similar to what Apple is about to introduce in iCloud, it isn't going to become an intrinsic part of a person's or a family's life. Amazon might be able to offer that at some point, although it would be surprising to see it appear in a device that does not even have a camera in it.

  1. iphonerulez

    Fresh-Faced Recruit

    Joined: Nov 2008

    +1

    We'll never know exactly how

    many Kindle Fires are sold because Jeff Bezos likes to hide the numbers of Kindles sold. Using his non-transparency technique, the media can't manipulate his stock like they manipulate Apple's stock. You'll never know if Amazon has sold more or less Kindles. No analyst can say that there's a slowdown of Kindle sales because no one outside of Amazon knows how many are being sold. Jeff Bezos has Wall Street and Amazon investors wrapped around his pinky finger. Whenever asked how are Kindle sales are going, Jeff just replies, "Sales are great. You can trust me on that because I'll never tell." And the analysts don't even care whether he's lying or not. Fire tablet sales will be great because Jeff will tell everyone that they're great and no analysts will bother to check to see if its true. Apple should start hiding unit sales numbers and then Tim Cook can just tell everyone that Apple is selling everything it makes and then Wall Street should be satisfied without looking into any particulars like component supplies and such. Just take Tim Cook's word for it.

  1. SockRolid

    Forum Regular

    Joined: Jan 2010

    +8

    Amazon "gets it"

    Amazon made almost $10 billion last quarter. They don't need to make much money per Kindle Fire. But the Fire will add another convenient, post-PC way for Amazon customers to spend money on Amazon products.

    Bingo. Amazon now owns the low end of the "tablet" market. Apple owns the high end. Good luck to anyone trying to find a niche in between.

  1. testudo

    Forum Regular

    Joined: Aug 2001

    -1

    Re: We'll never know exactly how

    We'll never know exactly how...many Kindle Fires are sold because Jeff Bezos likes to hide the numbers of Kindles sold. Using his non-transparency technique, the media can't manipulate his stock like they manipulate Apple's stock.

    So are you saying this is a good thing or a bad thing? Because you argue both.

    And the analysts don't even care whether he's lying or not.

    Analysts care. They don't care much, because the sales are such a blip on the big radar screen of life.

    Fire tablet sales will be great because Jeff will tell everyone that they're great and no analysts will bother to check to see if its true.

    Right, everyone loves Amazon but all hate Apple. Gee, seem a little defensive.

    Apple should start hiding unit sales numbers and then Tim Cook can just tell everyone that Apple is selling everything it makes and then Wall Street should be satisfied without looking into any particulars like component supplies and such. Just take Tim Cook's word for it.

    And now you're pointing out two completely different things. Do you want Amazon to tell you how much they're making on Kindles or how well they're selling?

    BTW, Apple hides sales of the AppleTV. They can do this for the same reason Amazon can hide their sales, because the total is so small that they don't need to disclose it. Heck, Apple even hides sales of MacPros (as they are lumped into 'computer' or 'desktops' category). But let's all just harp on Amazon. Because they ain't apple so they must be gaming the system!

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