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Amazon sells its latest Kindle at a $5.25 loss

Aggressive pricing model might hit competition hard
Thu Nov 10 2011, 15:10

ONLINE BOOKSELLER Amazon is selling its latest Kindle ebook reader at an estimated loss of $5.25 per unit, ensuring it beats the competition by offering the lowest priced ebook device on the market.

The latest Kindle costs just $79, making it Amazon's lowest priced e-reader to date. In fact, it's so cheap that it's priced less than the roughly $84.25 it costs to make, according to a report by research firm IHS Isuppli given exlusively to Mainstreet.

Isuppli broke down the bill-of-materials costs as $30.50 for the display module, $30.37 for the main printed circuit board (PCB), $15.08 for enclosures and final assembly, $2.06 for box contents, and $0.59 for miscellaneous interface PCBs. That brings the material cost to $78.59. Adding manufacturing cost of $5.66 bumps the price to $84.25, giving Amazon a small loss of $5.25 on every Kindle sold.

This might sound like madness at first, but Amazon makes up the money in other ways. For each Kindle, it can almost be guaranteed to sell some ebooks and digital magazines, on which it earns a sizable 30 per cent.

It will mainly make money from advertising, however, as this device comes with ads on its home and lock screens, part of Amazon's "Special Offers" approach that allows for a significant discount on a device if users will accept a bit of advertising thrown in.

If users don't want the advertising the new Kindle costs $109, giving Amazon close to $25 in profit per unit. Amazon is taking a similar approach with its other Kindle offerings, with the Kindle Touch, due on 21 November, selling for $99 ad supported or $139 non-ad supported. The 3G version of the Kindle Touch will sell for $149 or $189, respectively.

Amazon is also suffering a loss on its upcoming Kindle Fire tablet, which Isuppli costed out at just over $209 last month. Amazon is selling it for $199, losing around $10 per unit. The difference for the Kindle Fire is that it won't be ad supported, so Amazon is relying on making up the difference through selling its other products.

Amazon's aggressive pricing, particularly with the Kindle Fire, could have a significant effect on the tablet market, which is dominated by expensive devices like Apple's Ipad 2 and Samsung's Galaxy Tab. While these companies might be reluctant to take a loss on these products to generate sales, they likely will be forced to cut their prices to remain competitive against Amazon. µ

 

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