The new Kindle Fire from Amazon is being sold in the loss, according to iSuppli, which has analyzed the tablet and its components and estimated the cost of production at 209.63$ while the selling price is currently only 199$.
The estimated cost includes manufacturing expenses and hardware cost but does not include marketing or logistics costs, delivering an apparent even steeper loss for Amazon.
iSuppli has also published another estimation. They calculated that each Kindle Fire will bring 10$ from each buyer through additional purchases, a number that seems too low for Amazon to take such a drastic marketing direction with the new tablet.
The Logic Behind The Pricing Model
It is unknown if the estimations are correct, and if they are, how Amazon does expect to compensate for the loss? The overall accepted reason for why Amazon would make a marketing move that places them in loss is that they hope that Kindle Fire users will return to the retailer’s website and purchase additional products sold there, as MP3s, DVDs, and e-books, which can all be listened, seen or read on the tablet.
While these purchases seem fairly small, Amazon’s target seems to be simply bringing people to their website where the buyers can be lured into larger acquisitions as household items, clothes, car parts, sports items and everything else listed on their website, effectively making up for a 10$ loss in the production of Kindle Fire.
As the cheapest quality tablet on the market, Kindle Fire has managed to coerce other retailers to drop prices aggressively on similar tablets, as the HTC Flyer, which BestBuy is now selling for 299$ instead of 499$. Price drops will most probably occur of other tablet marketers as well, such as Google Inc’s Android-based tablet, Samsung Electronics, and Motorola.
It is said that Amazon’s decision to sell the Kindle for 199$ has managed to bring war on Apple, who’s cheapest iPad costs 500$ as well, over twice the price one would pay for the latest Kindle. Here’s a look at the Kindle Fire hardware components with price estimates.
While there may be differences between what one tablet can do and the others can’t, the average consumer will choose the cheaper version to satisfy its need, rather than spend double, which could be the idea that Amazon’s based their campaign on – get as many tablets out there.
Even if Kindle Fire is sold at a loss per item, it could be profitable, in the end, if large numbers of tablets are sold. The strategy seems to be working since there are already over 250,000 pre-orders for Kindle Fire within the first week of the announcement.