Feeds

Amazon's Kindle Fire is sold at a loss

When losing money makes good business sense

Using blade systems to cut costs and sharpen efficiencies

At $199, Amazon may be selling its new Kindle Fire at a loss, emulating King Gillette's marketing brainstorm: sell razors dirt cheap and make money on the blades.

According to a "preliminary virtual estimate" by the research group IHS, the Fire's bill of materials cost is $191.65, barely squeaking in below the $199 list price, and giving the new seven-inch fondleslab a less-than-massive profit margin of around 4 per cent.

Add manufacturing costs to the mix, however, and IHS calculates that the Fire costs $209.63. As the old joke goes, "Yeah, we may be losing money on each sale, but we'll make it up in volume."

Kindle Fire bill of materials, as calculated by iHS

But if IHS's preliminary analysis is correct, Amazon is more canny than that old thigh-slapper might suggest. IHS believes that Amazon is willing to make only a marginal profit on the Fire plus a relatively small amount of digital content that users will buy per tablet, because the online retailer is using it as a loss-leader to get customers into its online store where they'll pay good, high-margin money for gadgets, gizmos, and gewgaws.

A reasonable argument, but Amazon may have more than mere enticement in mind. Digital content – warning: prepare for a "well, duh!" statement – is the wave of the future.

And although digital content may not have high margins, shipping electrons over the interwebs has fewer back-end costs than does shipping those aforementioned atom-suffused gadgets, which require inventory management, warehousing, boxing, and other brick-and-mortar nuisances.

Amazon wants it both ways: use the Fire as a loss-leader as IHS suggests, and use it as a free razor-handle into which you can insert an endless stream – pun intended – of disposible-blade digital content. And, it should also be noted, use it to drive the public's perception of what a tablet should cost down into that magic sub-$200 range.

Cupertino may continue to charge a premium for its iPad hardware – ever hear that said of Apple before? – but other fondleslab punters are now in a whole new world: one that starts at $199.

And without Amazon's vast digital and real-world retail offerings surrounding competing tablets, it will be hard for them to continue that competition – as if they're doing all that well at present.

Even at razor-thin margins, Amazon is posed to slice off a tasty chunk of the competition. ®

HP ProLiant Gen8: Integrated lifecycle automation

More from The Register

next story
Yorkshire cops fail to grasp principle behind BT Fon Wi-Fi network
'Prevent people that are passing by to hook up to your network', pleads plod
Major problems beset UK ISP filth filters: But it's OK, nobody uses them
It's almost as though pr0n was actually rather popular
Apple orders huge MOUNTAIN of 80 MILLION 'Air' iPhone 6s
Bigger, harder trouser bulges foretold for fanbois
Google Nest, ARM, Samsung pull out Thread to strangle ZigBee
But there's a flaw in Google's IP-based IoT system
Microsoft unsheathes cheap Android-killer: Behold, the Lumia 530
Say it with us: I'm King of the Landfill-ill-ill-ill
All those new '5G standards'? Here's the science they rely on
Radio professor tells us how wireless will get faster in the real world
US freemium mobile network eyes up Europe
FreedomPop touts 'free' calls, texts and data
'Two-speed internet' storm turns FCC.gov into zero-speed website
Deadline for comments on net neutrality shake-up extended to Friday
prev story

Whitepapers

Designing a Defense for Mobile Applications
Learn about the various considerations for defending mobile applications - from the application architecture itself to the myriad testing technologies.
How modern custom applications can spur business growth
Learn how to create, deploy and manage custom applications without consuming or expanding the need for scarce, expensive IT resources.
Reducing security risks from open source software
Follow a few strategies and your organization can gain the full benefits of open source and the cloud without compromising the security of your applications.
Boost IT visibility and business value
How building a great service catalog relieves pressure points and demonstrates the value of IT service management.
Consolidation: the foundation for IT and business transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.