Amazon Kindle Fire: Profit or loss for retailer?
Analysts seem divided over the question of whether Amazon will actually make a profit or suffer a loss with each new Kindle Fire tablet that it sells.
Is Amazon losing money or earning a profit from the sale of each Kindle Fire tablet? Analysts seem to be at odds over that question.
But other analysts have chimed in with different opinions and estimates.
In comparison, RIM spends around $170 to make its BlackBerry PlayBook tablet, which reportedly gave Amazon some "design clues" for the Fire. The retailer was able to cut its costs by eliminating certain features found in the PlayBook, according to EE Times, which is published by UBM's parent company.
Amazon trimmed around $10.50 by leaving out cameras on both the front and back. It saved another $8 by using 8 gigabytes less memory than RIM does, and it cut out another $1.50 by eliminating support for Bluetooth, GPS, and a microphone.
"The Amazon Kindle Fire looks similar in fit and form to the Blackberry Playbook, but it's been stripped of its bells and whistles to help bring down the price," Jeffrey Brown, vice president of business intelligence at UBM TechInsights, said in the article.
Yet another research firm has derived a different manufacturing cost. Tearing down the Kindle Fire, IHS iSuppli has estimated each tablet's total cost at $209.63, leaving Amazon with a $10 loss for every one that it sells.
Among the various parts in the Fire, the touch screen is the most expensive, says IHS, weighing in at $87, while the processor is priced at a mere $15.
Whether Amazon is seeing black or red with each Fire it aims to sell, the retailer's strategy is the same. It's using the hardware to generate sales of both its digital media and its physical products.
In fact, though many analysts say Amazon will make its real money on the sale of movies, books, music, apps, and other digital content, IHS believes the true profit will come from the sale of physical goods.
Factoring in the cost of the Fire and the expected sales of digital content, Amazon is still likely to bring in a profit of only $10 on each tablet, suggests the research firm. Instead, the company is banking on the Fire and its content to stimulate sales throughout its store where it generates most of its profits on clothing and other physical items.
"So far, no retailer has managed to create an umbilical link between digital content and a more conventional retail environment," IHS said. "With Kindle, Amazon has created the most convincing attempt at this yet, and it is doing so by using established retail tactics: deploying content to get shoppers in the door, and then selling them all sorts of other goods."