How Amazon Will Make Money from Kindle Fire

Whatever Amazon makes (or loses) from sales of its Kindle Fire tablet, the company plans to make money by selling more apps, books, movies and music through the device, not to mention any incremental sales of physical goods from Kindle Fire owners trying to get the most out of their Amazon Prime subscriptions. 

The company’s share price is taking a pounding today after investors finally realized just how much the company will be spending to subsidize sales of its Kindle Fire tablet.  Which is odd for a couple of reasons.

First, sites like Phandroid reported in September that Amazon’s BOM cost on Kindle was around $10 more than the product’s $199 retail price.  When you add support, returns and other costs, the company might lose $50/unit before generating revenues from sales of apps, media downloads and other incremental purchases from Amazon.  Did analysts and investors miss this?  Did they not believe iSuppli’s calculations, or the projections that Kindle Fire would sell 3-5 million units in Q4, 2011, alone?

Second, the Kindle Fire may be a proof-of-concept for an Android fork that Amazon can offer to Samsung, HTC and other tablet makers.  After all, one of Android’s big advantages is its price (free from Google, plus royalties to Apple and Microsoft), and Amazon could subsidize other makers at least as easily as it can subsidize its own hardware.  With further subsidies from carriers, there’s no reason that these tablets can’t be offered, with data services, for free.

Bottom line:  Amazon will make money from Kindle Fire.  Look for Amazon skins and apps everywhere on Android tablets from a variety of manufacturers, and also some much happier Amazon investors.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s