Light Reading

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 Hewlett-Packard Co. (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
Flash Poll
From The Founder
Network architects aiming to upgrade their networks to support agile, open, virtualized services in the 21st century need to consider new criteria when choosing between technology suppliers.
Live Streaming Video
BTE 2015 Sponsor Keynote: HP
Dr. Prodip Sen, CTO, Network Functions Virtualization, HP
LRTV Documentaries
IoT in Action

6|30|15   |   1:39   |   (1) comment


Two co-workers discuss the benefits of IoT technology.
LRTV Interviews
Ericsson Opens Up on OPNFV

6|30|15   |   14:16   |   (0) comments


Martin Bäckström, VP and head of industry area Datacom at Ericsson, talks to Light Reading founder and CEO Steve Saunders about the emergence of OPNFV, the importance of standards and Ericsson's OPNFV plans.
LRTV Custom TV
NetNumber Founder Discusses NFV/SDN Impact on SP Networks

6|26|15   |   4:15   |   (0) comments


NetNumber Founder Doug Ranalli examines why SPs need a new network infrastructure for service agility. While NFV and SDN are the tools, the old ways of thinking about signaling control are inhibitors. Doug provides his recommendations.
LRTV Custom TV
Orchestrating NFV vCPE Services Across Multivendor Networks

6|26|15   |   5:46   |   (0) comments


Nirav Modi provides an overview of vCPE, the fastest-growing NFV use case, showing how Cyan's Blue Planet orchestrates vCPE services across a multivendor infrastructure to rapidly deliver new managed services for business customers.
LRTV Custom TV
ZTE at LTE Summit Amsterdam 2015

6|26|15   |     |   (0) comments


As one of the leading global telecommunications providers, ZTE presented its cutting-edge technology at LTE World Summit 2015 in Amsterdam. On display at ZTE's booth were the latest R&D achievements in wireless, 5G development, HetNet, deep convergence of FDD and TDD, and RCS/IMD/iSDN/vCN.
LRTV Documentaries
OPNFV Director Opens Up on Women in Tech

6|25|15   |   3:25   |   (0) comments


Heather Kirksey, the director of the OPNFV, gets real about the gender disparity in open source and standards and discusses how we can change both the conversation and the gender dynamics.
LRTV Custom TV
Symantec's Service Provider Security Strategy

6|24|15   |   7:06   |   (0) comments


Didi Dayton explores Symantec's emerging enterprise security strategies for service providers. Highlights include 'killing the password,' self-defense, advanced analytics and adaptive response in a service provider architecture.
Between the CEOs
Debating Network Evolution With Cisco's Cedrik Neike

6|23|15   |   12:54   |   (2) comments


Cedrik Neike, SVP of Global Service Provider, Service Delivery, at Cisco, talks to Light Reading founder and CEO Steve Saunders about solving service provider customer problems in a virtualized, DevOps world, including multivendor support and the future of network procurement.
LRTV Documentaries
Vodafone: What's Good for Moms Is Good for Business

6|23|15   |   3:04   |   (3) comments


Megan Doberneck, the general counsel for Vodafone Americas, discusses her company's progressive maternity policy, explains why promoting women in tech is good business and offers some some good advice for any women in the industry.
LRTV Interviews
NFV: Ready for Prime Time

6|23|15   |   05:09   |   (1) comment


At BTE 2015, Vip mobile CTO Dejan Kastelic talks about how NFV is ready for the real world and how Telekom Austria is introducing centralized resources for its group operations.
LRTV Documentaries
Tykes Talk Tech

6|22|15   |   02:30   |   (9) comments


What does optical fiber look like? When will 5G arrive? What's the WiFi password at Ikea? Light Reading sat down with three 8-year-olds to answer some of the communications industry's most burning questions...
LRTV Huawei Video Resource Center
Huawei Partners With TDC for World's First Early DOCSIS 3.1 Field Test

6|22|15   |   3:06   |   (0) comments


In a move to enhance user experience, Denmark's TDC aims to become an early adopter of DOCSIS 3.1. In partnership with Huawei, TDC recently ran the world's first field tests on its coax network that reached speeds nearing 1 Gbit/s.
Upcoming Live Events
September 16-17, 2015, The Westin Galleria Dallas, Dallas, TX
September 29-30, 2015, The Westin Grand Müchen, Munich, Germany
October 6, 2015, The Westin Peachtree Plaza, Atlanta, GA
October 6, 2015, Westin Peachtree Plaza, Atlanta, GA
October 14-15, 2015, New Orleans Ernest N. Morial Convention Center, New Orleans, LA
All Upcoming Live Events
Infographics
Hot Topics
Staying Productive With My Office-in-a-Bag
Mitch Wagner, West Coast Bureau Chief, Light Reading, 6/25/2015
WiFi Calling Catches on Globally
Sarah Thomas, Editorial Operations Director, 6/23/2015
Who's Feeding Fiber to LinkNYC Hotspots?
Mari Silbey, Senior Editor, Cable/Video, 6/29/2015
Verizon Closes AOL, Hints at Summer Launch
Mari Silbey, Senior Editor, Cable/Video, 6/23/2015
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
Casa Systems has been going from strength to strength over the last couple of years. In 2013, it became the first vendor to ship an integrated CCAP device -- the ...
Cedrik Neike, SVP of Global Service Provider, Service Delivery, at Cisco, talks to Light Reading founder and CEO Steve Saunders about solving service provider customer problems in a virtualized, DevOps world, including multivendor support and the future of network procurement.
Cats with Phones