Amazon will not be making a profit from the sale of the new cheaply priced Amazon Kindle Fire. In fact, it costs more to produce than for the sales price, like the HP TouchPad recent fire sale. Amazon will be making money on the sale of Amazon goods and services. It’s working as a way to get customers inside the online retailer's doors.
The Amazon Kindle Fire is on presale from Amazon now and will be released on November 15.
iHS Suppli notes that with its lower pricing than the iPad, and its positioning as a super eReader, the Kindle Fire may serve in fact to expand the tablet market. The Kindle Fire potentially could become the No. 2 selling tablet after the iPad.
A preliminary virtual estimate made the IHS iSuppli Teardown Analysis Service places Kindle Fire’s bill of materials (BOM) cost at $191.65. The total cost to produce the Kindle Fire rises to $209.63 after manufacturing costs.
When further costs outside of materials and manufacturing are added in—and the $199 price of the tablet is factored along with the expected sales of digital content per Kindle FireAmazon is likely to generate a marginal profit of $10 on each one sold.
However, the real benefit of the Kindle Fire to Amazon will be to promote sales of the kinds of physical goods that make upthe majority of Amazon’s business. Amazon generates its profits on sales of shoes, diapers, and every other kind of physical product imaginable. Amazon’s content business is designed to lure in consumers to buy such everyday goods as well as other money-making items.
With Kindle, Amazon is deploying content to get shoppers in the door, and then selling them all sorts of other goods.
This business model is unique to Amazon. No other tablet brand or e-book reader operates such a broad retail service, which generated $34 billion in revenue in 2010. Conversely no other retailer can offer a tablet specifically designed to promote sales of its goods.
With its use of the Android operating system, the Kindle Fire is a multifunction device. Therefore, while its main use is as a color e-book reader, it also has a browser for surfing the Web and the capability to load apps. Such capabilities put the Kindle Fire in the tablet category—although it is more a “super e-book reader” than a low-cost tablet.
The Amazon Kindle Fire tablet likely leverages design elements and component selections from the Playbook tablet from Research in Motion Ltd. Both the Kindle Fire and the PlayBook are manufactured by Taiwanese electronics contract manufacturer Quanta Computer Inc. Because Quanta engages in product design, it likely is repurposing much of the expertise it gained from developing the PlayBook for use in the Kindle Fire.
The preliminary virtual teardown of the Kindle Fire estimates that display/touch screen is the most expensive subsystem of the device, at $87.00. The applications processor in the Kindle Fire likely a dual core device, priced at $15.00.
The IHS iSuppli Teardown Analysis Team plans to conduct a complete physical teardown of the Kindle Fire when the product begins shipping.