It Costs Amazon Less to Make a Kindle Fire Than Previously Thought
With each Kindle Fire sale Amazon loses money, but not that much. On Thursday, iSuppli did a teardown, estimating it costs Amazon a $201.70 to make its tablet. The Wall Street Journal reports on Friday that the tablet only costs Amazon $203 to make. The two estimates put Amazon's loss on the tablet, which is priced at $199, in the $3 to $4 range before other expenses are factored in. That's still a loss, but a lot less than previously estimated.
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The day Amazon revealed it would sell its tablet below a $200 price point, the blogger world wondered how on earth Amazon got it down so low. And then came the guesses. That very same day, investment firm Piper Jeffray estimated that with each Kindle Fire sale Amazon would lose $50. But he based that number on iPad costs -- not too scientific, especially since Amazon had cheap in mind. Two days later, a more precise method got that number down to about $10 per Kindle. iSuppli, the same firm that did the breakdown, did a more methodical analysis, breaking down pricing for each part. With manufacturing and shipping, those numbers led iSuppli to believe each Kindle Fire cost $209.63 before its more recent revision.
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Amazon knew that the device itself wouldn't be a profit center all by itself. CEO Jeff Bezos wanted people to use the tablet to buy content, which would generate real profits. "What we are doing is offering premium products at non-premium prices," he told Businessweek after releasing the tablet. "We don't think of the Kindle Fire as a tablet. We think of it as a service." If everything goes as planned, they'll be making up losses on selling the physical device by selling digital content. It worked for the original Kindle, which at a shockingly low $79 also loses money. But as Amazon has continuously brought the price down, e-book sales have risen -- and Amazon sells more e-books now than physical books. Bezos guesses that's exactly what will happen with the Kindle Fire. And so far, that seems to be working. Since launch, subscriptions to Amazon Prime, Amazon's moneymaking content shop, have risen.
