Amazon's Kindle Fire Money-Making Strategy Is Working

Rebecca Greenfield

Though Amazon loses money on the production of each Kindle Fire, the company more than makes up for it in digital media sales -- just as planned. With its chintzy feel, slow interface and bugs, the Kindle Fire hasn't impressed. But for Amazon that doesn't matter, because for each Kindle sold, the company makes over $100 in additional revenue, according to  research from investment firm RBC Capital. And even though the $199 tablet has its issues, it's selling. 

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"We don't think of the Kindle Fire as a tablet. We think of it as a service," Amazon CEO Jeff Bezos told Businessweek after making the tablet announcement. But the fact that the Kindle Fire is a tablet, and not a laptop or smartphone, makes a difference. Tablets bring out our inner online shopper. Tablet users spend over 50 percent more per purchase then smartphone users and 20 percent more than computer shoppers, according to research released by Adobe today. That same research concluded that tablet shoppers are three times more likely to make a purchase than phone users. And last year these users spent, on average, more than phone and computer buyers, as the chart below shows. 

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Even with Amazon losing money on each Kindle Fire -- around $3 to $4 dollars last time we checked -- the shopping machine is a money-maker, with RBC estimating that each Kindle Fire makes Amazon $136 in a three year lifetime. The company has sold an estimated 5.5 million units, meaning it's banking $748 million in additional revenues for the company. And as Amazon gets around to fixing all the hardware and software glitches, we imagine the budget option will look more appealing to wannabe tablet owners. 

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Of note for that other, more expensive, tablet maker, that same research found consumers spend most on books. Apple must've seen that coming as it just announced iBooks 2.0 this morning.