Feeds

Amazon's Kindle Fire is sold at a loss

When losing money makes good business sense

Secure remote control for conventional and virtual desktops

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. ®

5 things you didn’t know about cloud backup

More from The Register

next story
UK fuzz want PINCODES on ALL mobile phones
Met Police calls for mandatory passwords on all new mobes
Canadian ISP Shaw falls over with 'routing' sickness
How sure are you of cloud computing now?
Don't call it throttling: Ericsson 'priority' tech gives users their own slice of spectrum
Actually it's a nifty trick - at least you'll pay for what you get
Three floats Jolla in Hong Kong: Says Sailfish is '3rd option'
Network throws hat into ring with Linux-powered handsets
Fifteen zero days found in hacker router comp romp
Four routers rooted in SOHOpelessly Broken challenge
New Sprint CEO says he will lower axe on staff – but prices come first
'Very disruptive' new rates to be revealed next week
PwC says US biz lagging in Internet of Things
Grass is greener in Asia, say the sensors
Ofcom sees RISE OF THE MACHINE-to-machine cell comms
Study spots 9% growth in IoT m2m mobile data connections
O2 vs Vodafone: Mobe firms grab for GCHQ, gov.uk security badge
No, the spooks love US best, say rival firms
Ancient pager tech SMS: It works, it's fab, but wow, get a load of that incoming SPAM
Networks' main issue: they don't know how it works, says expert
prev story

Whitepapers

Endpoint data privacy in the cloud is easier than you think
Innovations in encryption and storage resolve issues of data privacy and key requirements for companies to look for in a solution.
Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Top 8 considerations to enable and simplify mobility
In this whitepaper learn how to successfully add mobile capabilities simply and cost effectively.
Solving today's distributed Big Data backup challenges
Enable IT efficiency and allow a firm to access and reuse corporate information for competitive advantage, ultimately changing business outcomes.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.