How Much Money is Amazon Losing on the Kindle Fire Tablet?
IHS iSuppli, for example, put together an estimated bill of materials (BOM) that has Amazon spending $209.63 on each Kindle Fire tablet. The most expensive parts are the display/touchscreen ($87) and main PCB ($70.40). After those items, everything costs $25 or less.
Now get this. According to eDataSource, Amazon racked up 95,000 Kindle Fire pre-orders on the first day it was available for purchase. If Amazon's losing $10 per device, that means it's already in the hole for $950,000! Of course that's chump change for Amazon, and eDataSource notes that 27 percent of Kindle Fire buyers also purchased an accessory to go along with it, so the online retailer has already recouped some of its hardware-related losses.
Amazon won't make its money back on accessories alone, and according to IHS iSuppli, the content demand the Kindle Fire stimulates will ultimately promote sales of other physical goods, thinks like shoes and diapers.
"Similar to Walmart and other large brick-and-motor retailers, Amazon’s content business is designed to lure in consumers to buy such everyday goods as well as other money-making items," IHS iSuppli says. "The importance of this strategy cannot be underestimated. So far, no retailer has managed to create an umbilical link between digital content and a more conventional retail environment. 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. 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."
That's an interesting theory, and IHS iSuppli says it's a business model unique to Amazon. How so? Well, no other tablet manufacturer or eBook vendor operates the same large-scale retail service as Amazon does, which sells almost everything under the sun.
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"I'm surprised that it has a dual core processor, I thought it was a single core. Nice surprise, for me, but I also thought that with Amazon's spending power , they wouldn't be losing money on each sample, another surprise. If IHS calculation are accurate, then I wouldn't worry much, A ten Dollar lost on each device is practically chump change, compared to the amount of money each device is going to generate on software and content. Still, good article and good to know this info.' |
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BGR has an article that claims Amazon is able to put these tablets together for $150 and are turning a profit at the $199 price point. |
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Frankly I'm surprised by what eDataSources said. I mean sure, they may be losing $10 per tablet but if people are buying Fire accessories to go with it and if it spurs sales in the other sectors of Amazon.com then they could be making a profit rather then a loss... Add to the fact that Amazon claims it can make them for $50 less and they have a really profitable tablet. The main issue is not whether or not it's losing money on the tablet, the issue is what Amazon can make on the tablet without relying on previously established services such as content and software. They can make loads of money off of the economy business they have, if they can manage to make the tablet so that it earns money for them in cooperation with it's core businesses then it has a successful tablet on it's hands. |
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In all seriousness, who fscking cares? I am sure Amazon did their due diligence before pricing their version of the AOL tablet, and if they didn't, it's not my problem. |
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I am sure as RTietjens is that Amazon did there due diligence on this. The thing is Amazon is in general a very smart business, and if they loose $10 per device but a large amount of purchasers buy accessories, as it looks like they are then they also buy or subscribe to Amazon media subscriptions, well then Amazon has already turned a long term profit. One thing I can bet without even looking is they have those subscriptions as added bargains if or when you purchase from there sites. |
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People won't be buying much in accessories for the Kindle Fire, because besides a case or cover you can't really get any accessories for it. There is simply no way given for you to use any accessories with the Kindle Fire. There is no bluetooth, no HDMI, etc. Nothing but the mini USB port for connecting it to you computer. So all the big profit will come from the software and services they will be offering through it but they have a large ecosystem for those services and stand to make much larger profit than they ever could on the hardware. While many of those services will also be offered to other devices after the Kindle Fire comes out and people can get a taste of using those services. Further expanding the potential profits they can look forward to. |
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