Kindle Fire Tablet Cost Amazon More To Make Than Sell: REPORT

By Alistair Barr

SAN FRANCISCO (Reuters) - Amazon.com Inc's new tablet computer costs $209.63 to make, IHS iSuppli estimated on Friday, highlighting how the e-commerce giant is taking a financial hit upfront to get the device into as many hands as possible.

Amazon's billionaire Chief Executive Jeff Bezos unveiled the Kindle Fire at a lower-than-expected $199 price on Wednesday.

The launch sparked concern about a price war at the lower end of the tablet market, currently dominated by devices running on Google Inc's Android operating system from companies such as Samsung Electronics Co Ltd, Motorola Mobility Holdings Inc and HTC Corp.

IHS iSuppli said the components that go into the Kindle Fire cost $191.65. Additional manufacturing expenses bring the total cost to $209.63.

Based on IHS iSuppli's estimates, the company may lose just under $10 on each Fire it sells. But Amazon is hoping the device encourages users to buy more products and services from the company, making up for the upfront losses.

"The real benefit of the Kindle Fire to Amazon will not be in selling hardware or digital content. Rather, the Kindle Fire, and the content demand it stimulates, will serve to promote sales of the kinds of physical goods that comprise the majority of Amazon's business," IHS iSuppli said in a statement.

"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 device -- Amazon is likely to generate a marginal profit of $10 on each Kindle Fire sold," the research firm added.

Copyright 2011 Thomson Reuters. Click for Restrictions

Check out photos of the new tablet (below).

Comments

[meetsonya]

02:46 PM on 10/05/2011

It's not a new strategy. With its various VAS and digital media, they will easily recoup the cost. I don't think anyone is concerned Amazon will go out of business from their Kindles.

http://forums.kindlefirefans.com/

[Natedc]

02:33 AM on 10/03/2011

Not new, your PS3, X360 and WII all cost more to make then you paid. The profit comes from licensing.

[TJ Logan]

08:34 PM on 10/02/2011

They said the same thing about the original Kindle.

The Kindle Fire is the Gellette Safety Razor of our time - sell the blade holder at a loss, sell the cheap blades for a fortune. This strategy has worked well for PC Printers and their ink supplies.

[FDRbyGodDemocrat]

02:18 PM on 10/02/2011

Is it just me, or does Jeff Bezos look like Charlie Runkle?

[Bor Zoi]

12:38 PM on 10/02/2011

An inexpensive reader is probably Amazon's way of increasing download sales;
probably another access model:
1) free handle --> expensive razor blades
2) $200 iPhone --> $100 / month data & phone plan

[Post31]

01:52 AM on 10/02/2011

Good luck with that.

[zooperman]

08:22 PM on 10/01/2011

Tablet? It is an Amazon shopping device. iPad is a tablet.

[StinkyPete0279]

11:48 AM on 10/02/2011

Tablet? It is an Apple shopping device.

[jdbond]

06:57 PM on 10/01/2011

More they will produce, less it will cost. Besides, companies make such decisions all the time. Once they make a dent in tablet market, they can always jack up the price.

[Vic22]

05:31 PM on 10/01/2011

Doesn't this technically count as dumping? Or is that only an issue if you use it to drivesomeoneout of a market, not gain market share?

[mojo filter]

05:13 PM on 10/01/2011

Must be following Netflix's strategy. Crush your competition and then jack up the prices big.

[FDRbyGodDemocrat]

01:54 PM on 10/01/2011

As a Kindle owner, a notepad owner, and an iPad owner, I don't see a successful niche for this device, and I certainly don't see it replacing the Kindle. The beauty of the Kindle is the month-long battery life and the e-ink that allows me to read outdoors. For hardcore reading, it can't be beat. If I want to surf the Internet or do something in color, I grab the iPad (or any other notepad). The Kindle apps for other devices are great, so this is kind of a curious marketing move. They obviously think it will pull more people to Amazon purchases, but I'm doubtful.

[Bathat]

08:43 PM on 10/01/2011

You just defined the niche for the Kindle Fire it's for the people can't afford to buy ALL three of the gadgets you own (a Kindle, a notebook, and an iPad).

[FDRbyGodDemocrat]

10:18 PM on 10/01/2011

You really don't need all three. An iPad with a Kindle app makes a fine e-reader. So does a notebook. The only thing unique about the Kindle Fire is that it's the carnival barker for Amazon.

[kellygreen]

02:16 PM on 10/04/2011

The niche for the Kindle Fire is to put iPad functionality into the hands of people at an e-reader price point.

Despite being an owner of an iPad, a Kindle, a Nook and an iPhone...I see the value of the device.

1. The Ipad is a great multimedia device...but is not conveniently portable. Plus its 3G version is redundant if you already have a smartphone.

2. The Kindle is a great e-reader for the hardcore reader...but is not not user-friendly or particularly capable for any other use.

3. The Nook is a great peice of hardware...but suffers from B&N limited content selection and under-development of its other capabilities as a tablet.

4. The iPhone is a great all-around multimedia device and is very portable....but its small size makes it a pain the butt as an e-reader or video interface.

If I just want the specialized function of a e-reader...and nothing else...the original Kindle is tough to beat. But if I'm travelling and don't want the hassle of dragging along a lot of specialist electronic devices, the Kindle Fire starts to look like a device that combines the best characteristics of a lot of different devices.

...and the embarrasingly low price point is a huge enticement to both those who cannot afford the more expensive devices, as well as those who already own them, but are looking for device to fill a different niche.

[jodieez]

12:31 PM on 10/01/2011

The apple operating system will remain the most reliable, most powerful and easiest pad to use.

You get what you pay for.

[jdbond]

06:57 PM on 10/01/2011

and obviously most overpriced...so no, they are taking you for a ride.

[zooperman]

08:23 PM on 10/01/2011

Did you read the story? Amazon is LOSING money with every sale - hoping to make a profit on sales of other items - and it is NOT equivalent to the iPad.

[CaptainSacto]

11:42 AM on 10/01/2011

Has this cheap imitator of Steve Jobs ever made money?

[Benjo333]

12:21 PM on 10/01/2011

Amazon....$40B in revenue, with $7.6B in gross profit for fiscal 2010, according to Yahoo Finance. Amazon has a market cap--meaning the companies value is $95B...about half that of Walmart. So, yeah Amazon makes money.

The idea behind the Fire is to capture the revenue and profit off of content and consumer loyalty to the Amazon brand. Ask those who are Amazon Prime members if they are happy with Amazon, I suspect you will find a resounding yes. Who are the losers to Amazon: Walmart, Target, Walgreens, CVS, Apple, Netflix and more...

[SanityForOnce]

01:27 AM on 10/02/2011

Wait until Amazon has to start charging sales tax...... other than selection, it will no longer have an advantage over your local stores. That's why they are doing everything they can to delay that day.

[Benjo333]

12:24 PM on 10/01/2011

Id say Barnes and Noble was a loser to Amazon, but that battle has been fought and lost to Amazon long ago...

[Ampoliros]

11:21 AM on 10/01/2011

First year of Prime subscription easily takes you back into range with the other tablets and its really kind of pointless to have a Fire without it.

Plus using the cloud for things you didn't buy from amazon isn't free after the first 2g. With no sd slot that 2g won't last long.

[J0E1]

02:31 PM on 10/01/2011

$199 + $79 = $500?  Where did you go to school?

[Ampoliros]

11:00 PM on 10/01/2011

Obviously not, but most android tablets the Fire will be competing with are in the $250-300 range. It doesn't even compare against anything higher (Tab 10, Xoom, iPad)

WIth Prime, its first year cost is $280 with content being subscription based.

[cfperks]

06:49 PM on 10/01/2011

You don't understand the true Amazon loyalist. I have several Kindles among my family members and the e-ink for a compulsive reader cannot be replaced. Battery life, reading outside, no glare - I'll never give up the standard Kindles until Amazon puts out the hybrid I hear is in development.

BUT I have already pre-ordered the Fire because the price gives me many features I want but would never pay the Ipad cost to get. I already am an Amazon Prime customer and have been for years. I shop mostly on-line and the 2 day free shipping throughout the year pays for the Prime cost many times over.

For $199 what I get as an Amazon Prime member already is nothing short of phenomenal!

[Ampoliros]

11:01 PM on 10/01/2011

True, The Fire will do for amazon customers what apple has already done, fence them in.

[tailgateshirts]

02:49 PM on 10/02/2011

agreed - just makes having prime better

[Warren Peace]

11:07 AM on 10/01/2011

Dirt Cheap for who?

[Benjo333]

12:22 PM on 10/01/2011

In comparison to the market...meaning tablets and I think most would argue pc's...