Amazon to Lose ~$50 per Kindle Fire Sold, Apple Gets ~$150 per iPad 2 Sold
September 29, 2011 8:12 AM
comment(s) - last by
Despite losses, strategy could pay off for the enterprising Android tablet maker
Yesterday, following Amazon.com, Inc.'s (
big tablet reveal
, Gene Munster, a Piper-Jaffray analyst known for his estimates of Apple, Inc.'s (
) sales, sent out a research note comparing the profitability of Apple's $500 iPad 2 with Amazon's $200 Kindle.
Mr. Munster estimated that the iPad 2 was turning a profit of 30 percent of its MSRP, while Amazon would lose $50 per Kindle Fire sold. However, he didn't provide a specific source of his figures or much of an explanation.
We dug into this a bit more. It turns out that
did teardowns [
this year's iPad 2
last year's Galaxy Tab
from Samsung Electronics Comp., Ltd. (
's numbers are hardly infallible, but given that the LCD market hasn't move much price-wise in the last year, for tablet screens, it can be assumed that the Galaxy Tab's 7-inch display cost in the bill-of-materials gives a good estimate of what the LCD touch-screen unit on the Kindle Fire costs. Combining this with the extra cost of the iPad 2's largest amount of onboard NAND memory, we estimate that the difference is indeed in the neighborhood of $100.
So what does this mean for Amazon.com -- and for Apple? Well, for Apple it's a testament of
how valuable the company's brand is
. Apple can have its cake and eat it too. It can sell a grossly marked up device, and at the same time post the kind of huge sales that brings in strong auxiliary revenue streams such as app sales and advertising revenue.
Apple doesn't have to offer big price cuts to get customers to bite.
[source: Entercom Digital Dev Blog]
Amazon.com isn't that fortunate. Despite arguably launching the consumer tablet with its Kindle e-Reader, Amazon.com has yet to establish itself as a major competitor in the new tablet market, which has been dominated by Apple and Samsung.
In order to gain ground Amazon.com appears to be adopting an approach similar to console makers in that it's
pocketing a loss up front
, in order to persuade early adopters to jump on board, leading to overall positive revenue via the auxiliary revenue streams.
Overall this approach could pay off for Amazon.com. The Kindle Fire is currently the cheapest fully functional Android tablet device on the market and its software offers nice differentiation over competive offerings.
Amazon pockets 30 percent of app sales revenue. And it gets $79 for its Amazon Prime membership, which it's promo-ing on the tablet (which provides users with streaming movies and TV episodes). If it can get one in every two customers to bite on the Amazon Prime membership, and get the average customer to spend $33 on apps over the device lifetime, it's broken even. If it can do
data mining on the users' web-browsing
, or sell users some of its massive ebook collecton, it will likely turn a profit (under the above scenario).
In short, the "fire-sale" price of Amazon.com might not be such a crazy idea after all. Maybe Hewlett-Packard Company (
) unwittingly stumbled onto the secret to tablet success after all,
during its TouchPad fire-sale
This article is over a month old, voting and posting comments is disabled
RE: It does have a sweet price point
9/29/2011 11:38:18 AM
I totally agree with you.
As a long time Kindle owner (since the Kindle 2, anyway) I prefer the e-ink display for reading books. The Kindle Fire isn't for reading, though. It's meant for personal movie watching, game playing, and music player.
I have a Galaxy Tab 10.1, and I use that for playing Angry Birds while waiting on something and for watching some movies when the TV is being take up by my roommate for her horror movies. (I find horror too predictable. It just does scare me, so I find it totally boring.) That 10" screen is nice for watching Star Trek movies. It's just big enough to see. I don't know how a 7" screen would work for that, though.
I'll stick with my Kindle 2 for reading books, and use my Galaxy Tab for other things. There are various things that each does best.
RE: It does have a sweet price point
9/29/2011 1:56:24 PM
In the vast majority of cases, there is no difference between a backlit display and e-ink. The eyestrain problems people complain about with reading on backlit displays are simply due to the ambient lighting being different from the display's lighting. e.g. reading in the dark. If you turn on a desk lamp or room light
like you would need to do to read an e-ink display
and adjust the backlight to match the lighting, there is no difference and no eyestrain.
The only time there is a real difference is reading in sunlight. The backlight can't put out enough light to match the ambient lighting in that case, so the e-ink display looks better. If someone would resurrect transreflective LCD technology, this problem would mostly go away.
e-ink still has a huge power and a moderate resolution advantage. But backlit LCDs most certainly can be used for reading books if used correctly.
"If you mod me down, I will become more insightful than you can possibly imagine." -- Slashdot
Amazon's New "Silk" Browser Gets Speedy Mobile Browsing Via the Cloud
September 28, 2011, 2:44 PM
Amazon Launches $199, 7" Kindle Fire Tablet
September 28, 2011, 9:58 AM
16GB, 32GB HP TouchPads Drop to $99, $149 Starting Tomorrow
August 19, 2011, 8:02 PM
Top 100 Brands Survey Names Apple Most Valuable Brand
May 9, 2011, 10:03 AM
Apple Announces iPad 2
March 2, 2011, 1:15 PM
Quick Note: Google Chromebooks Now Coming with 1TB of Google Drive Space
November 21, 2014, 1:20 PM
Xiaomi Aims to be #1 Smartphone OEM Within 10 Years, Apple Urges Caution
November 21, 2014, 9:33 AM
Quick Note: Samsung's Request to Dismiss Microsoft Lawsuit is Rejected
November 20, 2014, 12:53 PM
Amazon Offers "The Washington Post" Free for Six Months to Kindle Fire Owners
November 20, 2014, 7:41 AM
Apple Watch Screen Resolution, App Limitations are Laid Bare by Developer Kit
November 19, 2014, 11:31 PM
Apple Replaces “FREE” Label with “GET” on App Downloads in iTunes App Store
November 19, 2014, 5:38 PM
Most Popular Articles
Wal-Mart: Miss Thanksgiving, Get Xbox One + Master Chief Collection for $299
November 17, 2014, 9:40 PM
Nokia Lumia 635 LTE Windows Phone is Only $40 at Best Buy on Black Friday
November 18, 2014, 11:59 AM
Sweden Mulls Labelling "Sexist" Video Games in the Wake of Gamergate
November 17, 2014, 2:00 PM
It's Official: Twitter is Profitable "Junk"
November 16, 2014, 10:45 PM
Austrian Pilots Call Surface 3 Pro Flight Bag a "Dream Come True"
November 14, 2014, 2:00 PM
Latest Blog Posts
Costco Gives Employees Thanksgiving Off; Wal-Mart Leads "Black Thursday" Charge
Oct 29, 2014, 9:57 PM
"Bear Selfies" Fad Could Turn Deadly, Warn Nevada Wildlife Officials
Oct 28, 2014, 12:00 PM
The Surface Mini That Was Never Released Gets "Hands On" Treatment
Sep 26, 2014, 8:22 AM
ISIS Imposes Ban on Teaching Evolution in Iraq
Sep 17, 2014, 5:22 PM
Space Terrorism is a Looming Threat For the United States
Apr 23, 2014, 7:47 PM
More Blog Posts
Copyright 2014 DailyTech LLC. -
Terms, Conditions & Privacy Information