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back to article Amazon's Kindle Fire is sold at a loss

At $199, Amazon may be selling its new Kindle Fire at a loss, emulating King Gillette's marketing brainstorm: sell razors dirt cheap and make money on the blades. According to a "preliminary virtual estimate" by the research group IHS, the Fire's bill of materials cost is $191.65, barely squeaking in below the $199 list price, …

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Happy

At cost not same as at loss

I'm betting they pay less than $8 for some Chinese work slave (or malaysian etc) to slap one of these things together in country with scant labor laws and few to no environmental restrictions.

Further I bet knowing how many millions they would sell, I am sure they can get better bulk rates than expected by these speculators. I would bet they have priced it so that Amazon can at least squeak a tiny bit of profit out on the front end, and still as article states, they only need to have each owner buy a few books or items on Amazon and the device starts to show an overall really healthy profit margin.

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RE: At cost not same as at loss

Yeah, I'm pretty sure AMZN has a lot better relationship with these OEM/ODMs than iSuppli.com - it's probably sold at cost, with no loss at all.

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Pretty much what I figured.

This analysis pretty much reinforces my hypothesis and also explains why Amazon can be cavalier about not locking down the Firmware on its Fire. Selling at a small loss can be seen as an investment into getting more customers. Furthermore, rooted Fires can still visit Amazon's store, since Amazon has an Android App already: both for its store and for the Kindle books.

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Anonymous Coward

What world do you people live in, is this really an IT website?

The iSuppli estimate - which is always low since they use it for marketing their supply services - is materials only, there's going to be many more added costs - not only shipping but development (it may be Android but it's a whole new thingup on top), support and licensing.

Even if they had slaves making it at no cost you can bet they will still be losing money on them.

I'm very curious to see what steps Amazon will take to protect this loss leader.

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@ Metavisor

Amazon won't need to protect much. At a cost few could match, and making clear it'll be root friendly (thus welcoming hackers and developers of other systems looking to port), they can sit back with a smile on their face as punters roll in through the door. A fair few may look around too (and with free postage, Amazon is consistently a better price than my supermarket with like-for-like comparisons (barcode scans)), so...

...oh, and they can smile smugly at giving iWhatever a kick in the ass.

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Pulling out the Roots

I must've missed the part of the press release or announcement of Kindle being "root friendly".

I am skeptical this is the case though, as Amazon are a content supply business and (apparently) selling this device at as a loss-leader for their content, why would they allow Rooting? Especially when the most common use of rooting is to pirate software and bypass DRM restrictions on content, yes I know us techie sorts want to fiddle and install stuff and run emulators etc and have more noble ambitions than the freetards, but mainstream rooting is primarily for getting around the kind of restrictions Amaon will have in place to protect their investment.

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jai
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@StooMonster

you missed this El Reg article then:

http://www.reghardware.com/2011/09/29/amazon_accepts_kindle_fire_android_tablet_will_be_rooted/

[quote]The retailer will apparently do nothing to prevent hardware hackers getting into the gadget's software innards, Jon Jenkins, director of Amazon's Silk browser project, suggested to PC Mag.

"It's going to get rooted, and what you do after you root it is up to you," he said.[/quote]

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@StooMonster

http://www.reghardware.com/2011/09/29/amazon_accepts_kindle_fire_android_tablet_will_be_rooted/

Clear now?

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Pirate

If you don't know

And if you don't know how to root it, they will sell you a howto book, published by O'Reilly. And a couple of books on Android development, a book on java programming, one on python, maybe a tune or two to listen to while you read....

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Pirate

I'm confused Herbert, you use the pirate sign but then say they will "sell" all that?

Many (most) who root it will not be buying much more than the tablet.

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I did miss that, thanks for the link chaps, but I have to say there's a difference between accepting that it will be rooted and encouraging it. ;)

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"....why would they allow Rooting?"

One word, confidence.

Which supplier has more confidence in the superiority of their product?

The one who lets those who wish to do what they like, expecting the vast majority of purchasers to prefer the ease of use of the vanilla product and even some of those who Root to come back, or the one who feels the need to play whack-a-mole with the hobbyists?

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Trollface

Apple Fanboy just can't get over the news!

Most who live in the the "real world" and not Apple is God fantasy camp, look at these numbers and see them as higher then they probably need to be. All Amazons suppliers are also investing upfront with Amazon by lowering their costs. I don't think amazon needs to make a profit on these since their Prime Accounts cost $79 US a year... a pretty good annual residual if you ask me.

This certainly will put a dent into Apples iPad sales. Amazon is respected because it gives their customers great prices and value, whereas Apple is only known for just making huge profits off their fan boys moonbats by convincing them it's better.

Oh and I'm a iPhone and iPad owner.... I like them but they certainly aren't perfect. So why do i own them, well I can't control Apple's competition from making less then compelling products, but now Amazon has. I order my Fire with in minutes of the announcement, since it does everything my overprice iPad does that's important.

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Amazon can survive on lower margins

Look at the latest quarterly reports from Amazon and Apple. Amazon had gross margins of around 14%, Apple 41%. Amazon is built to run on low margins because it competes in retail. Amazon is going to try to change the prevailing model because it knows that Apple can't compete there.

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As I said in another thread

At these prices, it will screw over quite a lot of the competition so although in the short term they may make a small loss, they'll claim a large section of the tablet market from their rivals. After all, the savings they make can be used to buy ebooks and programs from Amazons TotallyNotAnAppStore.

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I forget what I was going to say... Oh yes; memory...

Add aps, ebooks and a device with "only" 8GB of memory in a device that plays movies I can't help but think that the market that amazon is aiming for is is streaming, why ask peeps to buy something, and nearly own it, when you can get them to pay for it again and again and again and again and again.............

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I think the Kindle release is a brave move considering the recent HP fondle slab experience.

I have tinkered with moving to Andriod myself, but the Apple phone and fondle slab being from the same stable just makes life easier.

My problem is I don't know enough about cross hardware integration with the various Andriod device manufactures and app stores?

Will I be able to have unto 5 devices use the same game license (per apple) or will each hardware device have to buy a fresh game license?

I don't think I am alone.

Though the price is unbelievable, I think this device will be the one device to entice me over to try Andriod, with Amazon's cloud I expect good content and reliability. If Amazon ever brought a decent phone out too, then Apple has a competitor.

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Headmaster

Device licenses

As memory serves, your Android apps are purchased by an account and may be installed and run on any device linked to that account. There may be a limit on the number of concurrent devices that can be linked to an account, but I don't know what it is without looking as it exceeds the number of devices I would ever own.

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Anonymous Coward

It will sell

Kindle sold well; so an Android tablet disguised as Kindle will sell. Do Apple have anything to fear? I think not. I'm planning on buying an iPad for the house (for everyone in the house, and the fire looks like a good option for travel (I already use Kindle extensively on my iPhone and appreciate something a bit bigger).

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More like $160?

Over at eetimes, they estimated the BoM to be around $150.

http://www.eetimes.com/electronics-news/4228505/Kindle-Fire-profitable-at-estimated--150-BoM

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EE Times' estimate is probably more accurate than the one used for this article.

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Windows

Still not a direct competitor to iPad

But it is an android killer in terms of price.

I didn't see the tribute being paid to Microsoft in that breakdown though?

If Samsung et al are paying it then why aren't amazon?

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WTF?

Android killer?

You can't kill what's deep inside you.

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Android competitor killer is how I read his post, considering the context of the article. Who would be able to match Amazon's price when they don't have the sales from content Eco-system to offset the low price (loss-leader) hardware sales.

Alternatively, one of the tech rumours yesterday was that Amazon are considering buying webOS from HP to power the next generation of Kindle -- one would assume to avoid issues such as the Microsoft tax on Android devices.

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@Still not a direct competitor to iPad

The Fire doesn't SD cards etc..., so MS can't extort!

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Anonymous Coward

HP / WebOS

Hmmm, interesting, but would be more interesting if they are talking to them about combining their skills on the next version of the Kindle fire, with 10 inch screen to compete directly with iPad, i.e. the HP pad that was so successful at the very low price in the firesale. This owuld be a great and winning comob in my view.

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Unhappy

At £199, the ones sold on this side of the pond will be profitable.

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Tax is taxing

US prices don't include sales tax whereas out include 20% VAT, which is a large chunk. Amazon will also have to pay import duty (more tax) before they even add cost of exchange (and hedging it) and then simple extras like cost of support in EU (multiple language instructions etc) and shipping.

Considering all of that, I doubt they would make much extra money from that UK price but they might well come in lower than £199.

Oh also, the cheapest US models also include advertising, you have to pay an extra £50 to get an advert free model. I wonder if these advertised-sponsor models will be available outside USA.

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Amazon UK wouldn't be importing then from the US, would they? Is there much difference between the import duties charged by both countries?

And I haven't read anywhere that the US Fires would be ad supported, just the ereaders.

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Anonymous Coward

Chippery costs always follow a downward trend, so just as most game consoles are launched for less than their BOM costs, probably within 6 months the Fire will be at break-even.

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Headmaster

Depends what you mean by "most"

Sony and Microsoft do indeed sell their console hardware at a loss for six months (or a year) or more.

Nintendo do not, they make margin on their hardware from day one.

Nintendo have sold "most" games console hardware (if you include handhelds), so most consoles are sold making profits on the hardware.

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Anonymous Coward

Not really

There's no way Amazon is paying these prices for their components. As someone that builds electronics, I always laugh at these "estimates" of what XYZ corporation is spending to build something.

Maybe if Amazon is building the Fire in ten piece production runs, they pay these prices. But if they are building them in the million piece per run range, they aren't paying even half of what is shown in this article.

It's amazing how low the cost of components can be in large quantities. A processor chip I use is $7.60 at quantity 10, but is under $1 in 100,000 quantity.

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Anonymous Coward

So you're saying that if I buy 10.000.000 of those CPUs the price becomes almost free? I'm sorry to tell you but that's not how it works, your small scale preconceptions don't apply.

iSuppli is in the business of telling their large customers where to get the best prices, these free bill of materials reports are just marketing for those services. If anything their estimates are lower than what's really out there.

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Anonymous Coward

Having worked for an actual supplier, I can say that the true price for big buyers is usually a) secret, and b) much lower than any advertised price.

iSuppli isn't going to get the true price given to manufacturers because they would end up giving out stuff for even less! The jacking up prices bait-and-switch game is mostly a consumer market thing; the supply chain has many sellers and few buyers. Piss off a buyer, you'll probably get shitlisted from all of them.

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Anonymous Coward

Oh please, iSuppli does NOT use advertised prices. Their job is to KNOW (through supply chain detective work) how much those big costumers are actually paying.

We're not talking intermediate suppliers here, these are direct sales from manufacturers! Yes I've worked in one.

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Anonymous Coward

I've heard making it up in volume not as a joke

As the old joke goes, "Yeah, we may be losing money on each sale, but we'll make it up in volume."

I've heard this proposed in seriousness by the CIS sales and marketing team at the Japanese electronics company that I used to work at. The kind proposal was declined you would be glad to know.

There might have been something misunderstood in the description of the negative margin but they did persist for a while.

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Anonymous Coward

At a loss...

So let's see what happens when the other retailers try to slip in their own apps into Amazon's ecosystem. Can Amazon even afford to let them do that?

Zinio, Netflix, Spotify, news media and the myriad of other apps that involve payments. Apple's subscription policies might actually look very friendly to them after this.

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jai
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this is going to be the crucial matter. Amazon surely can't let anyone buy their content from anywhere else, otherwise there's no high-margin sales to offset the loss (or zero-margin) sale of the fire.

then again, i know such a concept seems blasphemy to most El Reg readers, but a closed eco-system seems to have worked, and continues working, for Apple. So why not Amazon?

it's the other tablet manufacturers that are going to get screwed. They blatantly can't produce a decent tablet for retail $200, otherwise they would have done so by now. And they can't make one and sell it at a loss either, because they don't have the means to provide the content that users will purchase, so won't get any profit there either.

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Devil

@Rob re cost vs loss

Please understand that the numbers are estimates as to what the hardware costs are.

You have to add in shipping, marketing, etc... which means that if you sell the device at what it costs to manufacture, you'll end up selling it for a loss.

To the author's point, Amazon can sell the devices for a small loss because of their margins on the content which they sell and they are the only source for the content. In addition, El Reg pointed out an argument that Amazon also ,ntends to use this device to also get an additional revenue stream by spying on their users and their reading/viewing habits. ala Phorm.

Unlike Phorm, this system is a closed system where purchasing a device would constitute as an opt-in. You don't like, don't buy.

This is why I like my iPad since I can put any docs I want on it for later reading.... And no, I'm not a fanboi...

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Wait for it to be rooted

Then you can have a nice vanilla android tablet without Amazon data mining every damned thing you do with it.

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They're just following the model that games console manufacturers have been using for years. Get the hardware into people's homes, even if it means an initial loss, but make the money back on software and content. Apple have managed to do it the other way round!

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Facepalm

Poor analogy

A single game sale will push a PS3 into profit, and subsequent sales will generate lively income, whereas the stuff Amazon is shifting carries razor thin margins, App Store revenue is a rounding error for Apple, and as far as tablet content sales goes (books, films, music & apps), Amazon will be hard pushed to match that.

Now Amazon may well be happy with those slim profits from content as a long term income stream but Samsung, Motorola and the rest of the Android tablet Manufacturers can't replicate the strategy with no content and are likely to be squeezed out between Apple and Amazon, Google can't be best pleased about degoogled Amazon Tablets derailing their tablet efforts either.

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Anonymous Coward

That's right and have you noticed the price of games for those consoles? Will the 30% "standard" commission (which was pioneered by Apple) on media sales be enough to cover it?

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70% of retail price is a lot more money than selling via "standard" retail, if you're a games company that's pretty attractive.

30% is certainly the new digital standard used by Apple, Microsoft, Steam, Sony, Amazon, et al.

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Anonymous Coward

The 30% may be the commission in some, but it certainly doesn't apply to everything.

Outside of sales to 8 select countries Amazon will still take a 65% commission (yes, you only get 35%) on books you publish through their kindle store. https://kdp.amazon.com/self-publishing/help?topicId=A29FL26OKE7R7B

Also licensing fees to sell eg games on the PS3 are much more than simply 30%.

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Razor thin margins?

Amazon takes a whopping 30% of the price of books & apps, and likely a large chunk of movie sales too. If the device is sold $10 below cost then they'd make it back with a few purchases.

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"Cupertino may continue to charge a premium for its iPad hardware – ever hear that said of Apple before? – but other fondleslab punters are now in a whole new world: one that starts at $199."

It's not like for like though is it. You need to add 3" to the screen, a front and rear camera, another 8GB of storage, Bluetooth, Gyroscope, microphone? etc. If you look at it like that, these are very different products.

I think Amazon will sell millions of these, but not at the expense of millions of iPad sales. There will be some crossover sure, but it will appeal to a lot of people who have no intention of buying an iPad anyway.

I read another article that highlighted the differences perfectly. Look at the software Amazon are providing on the Kindle and what you can do with it. The Kindle Fire is for consuming, on the iPad you can create. Big difference in usage and market. I think Amazon know exactly what they are after and will do brilliantly without ever having to go completely head to head with Apple.

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Anonymous Coward

sure you can create on the ipad

but most people I have noticed use it to consume.

The only creating, is small note taking in meetings and thats about it, emails aside.

As this tablet will have quite a wide selection of apps available, you will be able to do the same sort of creation.

Maybe not creating new albums, like The Gorillaz, but hey its cheap!

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FAIL

Fail there. All tablets are for consumption.

No tablet can ever be for real creation, because it lacks a UI suited to use for long periods.

Many people can use a keyboard and mouse for a full working day, only requiring occasional teabreaks.

You can't do that on a touchscreen interface because touchtyping is impossible - you can't rest your hand, and tablet computer form factors are even worse because you have to hold the tablet.

Anyone thinking they can create with a tablet is deluding themselves, because you simply can't use the device for long enough periods.

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Facepalm

Way to miss the point entirely.

Apart from that, funny how I wrote my last presentation on my iPod touch sat on the fscking beach, and it got me the contract.

Just because you are incapable of achieving something don't automatically assume that everyone else is as well.

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