Light Reading
Amazon is one of the few companies that can significantly underwrite a tablet and count on its media services to turn a profit

Amazon's $199 Tablet Is No Loss Leader

Sarah Reedy
LR Mobile News Analysis
Sarah Reedy, Senior Editor
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
Flash Poll
From The Founder
It's clear to me that the communications industry is divided into two types of people, and only one is living in the real world.
LRTV Custom TV
Using Service Quality to Drive WiFi Monetization

10|22|14   |   6:51   |   (0) comments


Live from the SCTE conference: Heavy Reading's Alan Breznick explores the forces shaping the WiFi opportunity in an interview with CableLabs' Justin Colwell and Amdocs' Ken Roulier.
LRTV Custom TV
Distributed Access Architectures – 2

10|21|14   |   8:51:00 AM   |   (0) comments


ARRIS CTO Network Solutions Tom Cloonan discusses why many if not most MSOs will continue with integrated CCAP, while addressing why some are also looking at two futuristic, distributed access architectures: Remote PHY and Remote CCAP.
LRTV Custom TV
Distributed Access Architectures – 1

10|21|14   |   9:01   |   (0) comments


SCTE Sr. Director of Engineering Dean Stoneback discusses the pros and cons of distributed access architecture (DAA) and its various forms, which range from basic Remote PHY to full CMTS functionality in the node.
LRTV Custom TV
The WiFi Road to Riches – 2

10|21|14   |   3:58   |   (0) comments


ARRIS Senior Solution Architect Eli Baruch talks about how MSOs can enable public and community WiFi through 1) outdoor access points, 2) businesses seeking to offer WiFi to customers, and 3) residential WiFi gateway extensions.
LRTV Custom TV
The WiFi Road to Riches – 1

10|21|14   |   10:15   |   (0) comments


SCTE Director of Advanced Technologies Steve Harris discusses WiFi deployments, drivers, challenges and advances, including 802.11ac, carrier-grade WiFi, community WiFi, Hotspot 2.0, Passpoint, WiFi-First and voice-over-WiFi.
LRTV Custom TV
Advantech Accelerates 100G Traffic Handling

10|17|14   |   7:56   |   (0) comments


Paul Stevens from Advantech explains why handling 100GbE needs a whole new platform design approach and how Advantech is addressing the needs of equipment providers and carriers to give them the flexibility and performance they will need for SDN and NFV deployment.
LRTV Huawei Video Resource Center
Holland's Imtech Traffic & Infra Discusses Huawei's ICT Solution and Services

10|16|14   |   4:49   |   (0) comments


Dimitry Theebe is from the business unit at Imtech Traffic & Infra which delivers communications solutions for transportations. His partnershp with Huawei began about a years ago. In this video, Theebe speaks more about this partnership and what he hopes to accomplish with Huawei.
LRTV Huawei Video Resource Center
Huawei's Comprehensive Storage Solutions Vital for SVR

10|16|14   |   6:16   |   (0) comments


SVR Information Technology provides cloud services for academic and special sectors. With Huawei's support, SVR and Yildiz Technical University has established Turkey's largest and most advanced High Performance Computing system. CSO Ismail Cem Aslan talks about what he hopes Huawei's OceanStor storage system will bring for him.
LRTV Huawei Video Resource Center
Mexico's Servitron's Impression of Huawei at CCW 2014

10|16|14   |   6:35   |   (0) comments


Servitron is a network operator in Mexico that has been in the trunking industry for the past 20 years. Its COO, Ing. Ragnar Trillo O., explains at Critical Communications World 2014 that his company has been interested in the long-term evolution of LTE technology and its adoption for TETRA.
LRTV Huawei Video Resource Center
Building a Better Dubai

10|16|14   |   2:06   |   (0) comments


Abdulla Ahmed Al Falasi is the director of commercial affairs, a telecommunications coordinator for the government of Dubai. Their areas of service span across multiple industries, including police, safety, shopping malls and more. In this video, Abdulla talks about his department's work with Huawei.
LRTV Huawei Video Resource Center
Huawei Lights Up Malaysia Partner Maju Nusa

10|16|14   |   1:59   |   (0) comments


Malaysia's Maju Nusa is an enterprise partner to Huawei in networking, route switches and telco equipment. At this year's Critical Communications World in Singapore, CTO Pushpender Singh talks about what Huawei's eLTE solutions mean to his company and for Malaysia.
LRTV Custom TV
Evolving From HFC to FTTH Networks

10|15|14   |   2:19   |   (0) comments


Cisco's Todd McCrum delves into the future of cable's HFC plant, examining how DOCSIS 3.1 and advanced video compression will extend its life and how the IP video transition will usher in GPON and EPON over FTTH.
Upcoming Live Events
October 29, 2014, New York City
November 6, 2014, Santa Clara
November 11, 2014, Atlanta, GA
December 2, 2014, New York City
December 3, 2014, New York City
December 9-10, 2014, Reykjavik, Iceland
February 10, 2015, Atlanta, GA
June 9-10, 2015, Chicago, IL
Infographics
WhoIsHostingThis.com presents six of the world's most extreme WiFi hotspots, enabling the most epic selfies you can imagine.
Hot Topics
Analysts Warn of Major NFV Gaps
Carol Wilson, Editor-at-large, 10/22/2014
Is Health the Killer App for the IoT?
Jason Meyers, Senior Editor, Gigabit Cities/IoT, 10/22/2014
Drones Hover Over the IoT Sector
Jason Meyers, Senior Editor, Gigabit Cities/IoT, 10/23/2014
The Human Gain of the Smart Home
Robin Mersh, 10/20/2014
Zayo Zooms Out of the IPO Gate
Dan O'Shea, Managing Editor, 10/17/2014
Like Us on Facebook
Twitter Feed