& cplSiteName &

Amazon's $199 Tablet Is No Loss Leader

Sarah Thomas
9/30/2011
50%
50%

Amazon.com Inc. (Nasdaq: AMZN) is betting that the strength of its media business will make up for low margins on sales of its new $199 Kindle Fire tablet. It's a strategy that could pay off in a market where only Apple Inc. (Nasdaq: AAPL) has succeeded at charging a premium for a tablet. (See Amazon Fires Up Low-Cost Tablet Market.)

Its hardware may not be a wash either, however. While others have suggested that Amazon is losing nearly $50 per tablet it makes, a look at the Fire’s components indicate there's actually a small profit in the hardware.

Based on its estimates of the bill of materials and cost for the Amazon Kindle Fire, iPad 2 and PlayBook, device experts at Light Reading sister company UBM TechInsights estimates that it costs around $150 to produce the 8GB Kindle Fire, compared to $170 for a 16GB PlayBook (the device it most closely resembles) and $270 for the CDMA/GSM versions of the 32GB iPad 2. Amazon cut costs on the hardware with its smaller screen size, by not including cameras or a mic, and by including half as much storage as the lowest-end models of both the PlayBook and the iPad 2. Connectivity is also a big cost to tablets as Amazon saves more than $20 by going Wi-Fi only.

As a result, Amazon makes a $49 profit, while Apple pulls in around $320 per tablet sold and RIM makes about $130 after price cuts to the PlayBook in reaction to the Fire. (Click here for a larger view.)

Tablet Bill of Materials Comparison

Here’s a look at just the costs broken out, but refer to the larger image for the actual components in each.

Table 1: Tablets BOM Comparisons

Amazon Kindle Fire (Wi-Fi only) BlackBerry Playbook (Wi-Fi only) Apple iPad 2 (32GB 3G model-CDMA/GSM)
Display $60 $60 $80
Camera(s) None $10.50 $6
Main Processor $19 $19 $25
Radio Components $4 $5 $25
Flash Memory $8 $16 $32
Sensors (Non-Image) $2 $4 $4
Other $15 $15 $20 - $25
Total $150 $170 for 16GB; $185 for 32GB; $215 for 64GB ~$270 for CDMA/GSM 32GB
Source: UBM TechInsights




Selling Amazon’s ecosystem
The Fire’s margins may not be high, but even if it were taking a loss on producing the tablet, it likely wouldn’t matter. As an online retailer, Amazon is all about the services and the media it can sell from its ecosystem of partners to each Fire owner. And that’s a good thing, says TechInsight VP of Business Intelligence Jeff Brown.

“They are delivering a mechanism for content; putting devices in as many hands as possible to start downloading music, books and videos,” Brown says.

The biggest thing Amazon, like Apple, has going for it is that it has this content, plus its own browser and cloud services, integrated in one device. By relying on the cloud, extra storage isn’t necessary, encouraging active media consumption. Plus, not only does it get new customers, it can keep those customers' data, target them with new relevant offers, and turn them into a recurring revenue streams.

These are already Amazon's strengths with its online presence, Brown says.

Apple is in a unique position in that it can do all this and charge a premium, but Amazon wasn’t going to go head-to-head on the high end, he adds. That hasn’t worked for device makers like HP Inc. (NYSE: HPQ), BlackBerry and Motorola Mobility LLC . (See HP Brings TouchPad Back From the Dead, RIM Plans a Q3 PlayBook Revival and Moto Finally Xooms on Verizon LTE .)

Instead, it’s locking down an entirely new market of those who want an e-reader or those who want a tablet without spending $500 up front.

“This is the first aggressive foray into the low end,” Brown says. “And, it will be hard for others to respond because Amazon has this media business.”

— Sarah Reedy, Senior Reporter, Light Reading Mobile

(0)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
Light Reading’s Upskill U is a FREE, interactive, online educational resource that delivers must-have education on themes that relate to the overall business transformation taking place in the communications industry.
NEXT COURSE
Wednesday, September 14, 1:00PM EDT
What Is Agile?
Kent J. McDonald, Product Owner, Agile Alliance
UPCOMING COURSE SCHEDULE
Friday, September 16, 1:00PM EDT
How to Implement Agile
,
Wednesday, September 21, 1:00PM EDT
What Is DevOps?
Colin Kincaid, CTO, Service Provider, Cisco
Friday, September 23, 1:00PM EDT
How to Implement DevOps
,
in association with:
From The Founder
Light Reading today starts a new voyage as part of a larger Enterprise.
Flash Poll
Live Streaming Video
Charting the CSP's Future
Six different communications service providers join to debate their visions of the future CSP, following a landmark presentation from AT&T on its massive virtualization efforts and a look back on where the telecom industry has been and where it's going from two industry veterans.
LRTV Custom TV
F5 Virtual Network Function Integrations With Partner Orchestration Platform

8|24|16   |   6:38   |   (0) comments


F5's Kishore Patnam, product manager for F5's service provider solutions, discusses why service providers are moving towards virtualization and how his clients are utilizing F5's solutions.
Between the CEOs
CEO Chat: Intel's Alexis Black Bjorlin

8|17|16   |   06:23   |   (0) comments


Join us for an in-depth interview between Steve Saunders of Light Reading and Alexis Black Bjorlin of Intel as they discuss the release of the company's Silicon Photonics platform, its performance, long-term prospects, customer expectations and much more.
Telecom Innovators Video Showcase
Accelerating Telecom Digital Transformation With Nominum DNS

8|1|16   |   12:04   |   (0) comments


Light Reading's Steve Saunders gets an update from Nominum CEO Gary Messiana on how his company is helping carriers on the digital transformation journey.
LRTV Custom TV
Reinventing Operations for a Virtual, Software-Defined World

7|28|16   |   5:23   |   (0) comments


Heavy Reading Senior Analyst Jim Hodges speaks with Accenture's Larry Socher and Matt Anderson about what service providers must do to transform their business to get the benefits of SDN and NFV including: leveraging DevOps, introducing real-time OSS and implementing analytics.
Women in Comms Introduction Videos
Fujitsu Sales Leader Shares Lessons Learned

7|27|16   |   5:12   |   (1) comment


As Fujitsu's only female sales leader, Annie Bogue knows the importance of asking for what you want, being flexible (she's been relocated five times), keeping a meticulous calendar, 'leaning in,' working harder than everyone else around you, being aware and more.
Telecom Innovators Video Showcase
VeEX Test & Measurement Solutions

7|25|16   |   08:57   |   (0) comments


Cyrille Morelle, president and CEO of VeEX Inc., talks test and measurement with Light Reading's Steve Saunders at BCE 2016. This includes innovative products such as VeSion Cloud-Based platform for network monitoring; MTTplus Modular Test platform for Access, Business, Carrier Ethernet, Transport and Core services; and OPX-BOX+ for Fiber Optics.
LRTV Custom TV
VeEX: Live From BCE 2016

7|25|16   |   03:20   |   (0) comments


VeEX's Senior Director of Business Development, Perry Romano, explains how VeEX provides tools to help install, maintain, monitor and manage network infrastructure efficiently and effectively. The portfolio of products on display include the RXT-6000, MTTplus and TX300s.
LRTV Custom TV
Real-Time Telemetry & Analytics for Intelligent SDN Orchestration

7|25|16   |   03:09   |   (0) comments


Packet Design CEO Scott Sherwood discusses how real-time network telemetry and analytics are enabling a new breed of SDN orchestration applications.
From the Founder
The Russo Report: Driving Disruption

7|25|16   |   07:44   |   (2) comments


In the first episode of a four-part series, Light Reading Founder and CEO Steve Saunders and Calix President and CEO Carl Russo drive around town discussing the disruptive mega-changes in the communications industry and where hope lies for service providers to meet the escalating demands of the cloud.
LRTV Custom TV
NetScout: Maximizing Enterprise Cloud for Digital Transformation

7|20|16   |   04:53   |   (0) comments


Light Reading Editor Mitch Wagner talks to NetScout CMO Jim McNiel about maximizing the benefits of enterprise cloud and digital transformation while minimizing potential pitfalls with a proper monitoring and instrumentation strategy.
Women in Comms Introduction Videos
Ciena's VP Offers a Career Crash Course

7|20|16   |   4:14   |   (2) comments


How did Ciena's Vice President of Sales, Angela Finn, carve out her career path? Simple, she tells WiC. She stayed true to her company, customers and principles. She shares her advice for women on how to be authentic and credible, as well as for companies that want to make a real change to their culture and practices.
LRTV Custom TV
NFV in 2016: Part 2 – Climbing the Virtualization Maturity Curve

7|19|16   |   06:56   |   (0) comments


Many of the initial use case implementations are single-vendor and self-contained. The industry is still climbing the virtualization maturity curve, needing further clarity and stability in the NFV infrastructure (NFVi) and greater availability and choice of virtualized network functions (VNFs). Interoperability between NFVis and VNFs from different vendors ...
Upcoming Live Events
September 13-14, 2016, The Curtis Hotel, Denver, CO
November 3, 2016, The Montcalm Marble Arch, London
November 30, 2016, The Westin Times Square, New York City
December 1, 2016, The Westin Times Square, New York, NY
December 6-8, 2016, The Westin Excelsior, Rome
May 16-17, 2017, Austin Convention Center, Austin, TX
All Upcoming Live Events
Infographics
Five of the Top 10 most targeted countries in Check Point Software Technologies' global Malware & Threat Index for Q1 2016 are in Africa.
Hot Topics
Cisco Developing 'Monica' Digital Assistant
Mitch Wagner, West Coast Bureau Chief, Light Reading, 8/22/2016
VoLTE Can Drive 4G Small Cells Adoption
Ravi Narayanan, Senior Analyst – Cloud & Next Generation Mobile Networks, Heavy Reading, 8/18/2016
'Most Wanted' Kobi Comes Home
Ray Le Maistre, Editor-in-chief, 8/23/2016
Rocket Fiber Lights Up Detroit With Gigabit
Elizabeth Miller Coyne, Managing Editor, 8/22/2016
CCIA Counter-Attacks on Set-Top Proposal
Mari Silbey, Senior Editor, Cable/Video, 8/23/2016
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
Join us for an in-depth interview between Steve Saunders of Light Reading and Alexis Black Bjorlin of Intel as they discuss the release of the company's Silicon Photonics platform, its performance, long-term prospects, customer expectations and much more.
There's no question that, come 2020, 5G technology will turn the world's conception of what mobile networking is on its head. Within the world of 5G development, Dr. ...
Animals with Phones
Live Digital Audio

Bridging the tech skills gap is a major challenge for service providers and suppliers alike today – and the challenge is two-fold when it comes to increasing the number of women in the comms space. Level 3 Communications has made it a priority to overcome both challenges by implementing several unique programs focused on building the right candidates from within – in addition to filling the funnel by supporting STEM and other education programs. During this radio show, you’ll learn about these programs from Mary Beth McGrath, SVP of Global Talent Management at Level 3, and the best ways to bridge your own skills gap so that you are motivated and equipped for change. Plus you’ll have the chance to ask Mary Beth your questions live on the air.