By Hardware repair service iSuppli have done one of their traditional teardowns on the Amazon Kindle Fire, a $200 device. It’s always interesting to see how much the components that make up the device cost without factoring in all the extra stuff required to get it from production to consumers.
They’ve revealed that the Kindle Fire only uses about $203 worth of components. This is interesting as the trend is always that a device’s retail price is much higher than its cost of production.
After factoring in paying the workers who create, package and ship the units, paying for actual shipping, paying for marketing and paying for materials, some OEMs still have a decent profit margin when their device first ships. Amazon has none.
Amazon’s device model is different and actually makes a lot of sense, though. Instead of relying solely on hardware sales to produce profit after components get cheaper to buy, Amazon is relying on the tablet to drive their growing ecosystem. Sales they make on apps, books, videos and music will be their main revenue generator and may be even more fruitful than revenue from hardware sales over time.
It’s not unlike console OEMs who lose a ton of money on each console sold for their first few years on the market but make up for it with digital content and physical accessories that are heavily marked up.
The difference, of course, is that Amazon’s margin for loss starting out with the Kindle is much smaller and it will be easy for them to turn a profit soon. We imagine the lack of cameras, 3G/4G and Bluetooth radios and more are the main reasons they’ve been able to keep their MSRP close to their cost of production but it’s impressive nonetheless. [via ATD]
old news, this was talked about a couple weeks ago.
Correct. It was on this very site, about a month ago. And at the same time, everyone was pointing out that a parts list from iSuppli will be higher than actual production costs because you’re only buying 1 item of each. Amazon is buying in lots of 10,000, I’m sure, giving them an enormous discount. They may not be making much, but I guarantee they’re not losing money on this deal.
it only costs them $2.18 to ship via Ontrac
This business model isn’t unheard of. The Xbox 360 was sold below cost in hopes to rake in more revenue from Xbox Live memberships. Amazon’s disparity between cost and sales, however, isn’t as great as the Xbox’ so I don’t think it will take them nearly 8 years to be profitable, as the Xbox did.
Bravo, Amazon! We need more forward thinking businesses like this.
It’s not very forward thinking. It’s pretty obvious.
They need exactly one sale on Amazon spawned from this tablet to make a killing. I would love to be Amazon taking a $3 “loss” on this.
So they are taking a loss on every Kindle sold eh. They should have sold it for $220 or $229.
I guess they are also hoping/waiting on components to get cheaper to turn a profit.
Zero profit is considered normal profit (AKA economic profit).
That $203 based on buying one each of the items in the tablet? How much if Amazon buys a million of each item?
Regardless, it’s not the actual sale of the tablet where the money is, it’s the market and other services offered. Same way Google makes millions by giving away Android for free, for the most part.