Among the earliest whispers about Amazon's planned rival to the iPad, a theme emerged: it would be cheaper, much cheaper, than its Apple competition. The rumors proved true when Amazon unveiled a $199 tablet computer that lacks some of the iPad's features but significantly undercuts its $499 base price. This led naturally to another question: Can Amazon be making money on such a cheaply priced gadget?
The answer is no, a new analysis of the not-yet-released Kindle Fire estimates. But not making money on the hardware itself might not matter. Each tablet costs more than $209 to build, a research firm says. But the low price is intended to get the new device out the door to customers, and to provide a powerful new tool to connect shoppers to the vast range of products Amazon sells, not just its books and media.
Amazon is hoping the device encourages users to buy more products and services from the company, making up for the upfront losses, according to Wayne Lam, an analyst at IHS iSuppli.
This is a version of the "razor-blade" model in which Procter & Gamble unit Gillette sells razors at a loss and makes up the difference from profitable sales of blades later, Lam explained.
In Amazon's case, the Kindle Fire will stimulate demand for the company's digital content and boost sales of physical goods on its e-commerce websites, according to IHS iSuppli.
"When further costs outside of materials and manufacturing are added in -- and the $199 price of the tablet is factored along with the expected sales of digital content per device -- Amazon is likely to generate a marginal profit of $10 on each Kindle Fire sold," the research firm added.
The lower price-point isn't knocking the iPad off its pedestal just yet. But it's moving units. From PC Magazine:
Amazon and retail partners took 95,000 pre-orders for the first Amazon tablet, the Kindle Fire tablet on its first day, according to a digital marketing firm.
That's about a third of the 300,000 first-generation iPads Apple sold on its first day, but still impressive given Amazon is only shipping the Kindle Fire on November 15.
Some say the tablet is priced as it is for another reason, namely that it just doesn't do as much as an iPad. This is not the iPad-killer, according to the International Business Times.
This article is from the archive of our partner The Wire.