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
9/29/2011 1:31:24 PM
Uh oh, you are in for it now. You used a dirty 6 letter word,
said it was ok.
"We can't expect users to use common sense. That would eliminate the need for all sorts of legislation, committees, oversight and lawyers." -- Christopher Jennings
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
Google Testing Smart Thermostat in St. Louis
December 17, 2013, 11:43 AM
Microsoft Wins "Synchronized Calendar" Patent Case Against Motorola Mobility
December 17, 2013, 11:23 AM
President Barack Obama Meeting with Tech Leaders to Discuss HealthCare.gov, NSA
December 17, 2013, 10:59 AM
Quick Note: E-Waste to Increase by One-Third by 2017, U.S. Leads in E-Waste Output
December 16, 2013, 12:20 PM
Amazon Announces No Interest, Kindle Fire HDX Payment Plan
December 16, 2013, 10:35 AM
Google Removes "App Ops" Privacy Control Feature from Android 4.4.2
December 16, 2013, 9:29 AM
Most Popular Articles
Report: Windows 8.2 Revives Start Menu, Runs Metro Apps in Desktop Mode
December 10, 2013, 2:56 PM
Chinese Media Puts Positive Spin on Its Smog Problem, Touts 5 "Benefits"
December 11, 2013, 12:39 PM
China's Lunar Rover Enters Orbit, Prepares for Historic Sat. Landing
December 13, 2013, 5:00 PM
The History of Normandy: How Nokia Plotted a Low-End Android Line
December 11, 2013, 8:12 PM
Metro-Enabled Firefox Browser Expected to Land After Two Years of Work
December 12, 2013, 5:21 PM
Latest Blog Posts
Justice Leaks Details of Next HTC One Two Flagship Phone
Dec 5, 2013, 4:04 PM
Global Cyber Espionage Concerns Reveal Growing Cyber Armies
Nov 29, 2013, 11:04 AM
Is The Period Becoming an Expression of Anger?
Nov 26, 2013, 2:02 PM
NSA and Congress -- You Will Never Kill the Constitution, It's an Idea
Nov 10, 2013, 2:00 PM
AT&T Explores $100B+ USD Deal to Acquire Vodafone's European Operations
Nov 4, 2013, 7:34 AM
More Blog Posts
Copyright 2013 DailyTech LLC. -
Terms, Conditions & Privacy Information