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Businesses Handhelds The Almighty Buck

Amazon To Lose $10 Per Kindle Fire 181

Posted by Soulskill
from the on-hardware-anyway dept.
An anonymous reader writes "According to a manufacturing cost breakdown, it turns out Amazon is willing to sell its new Kindle Fire at a $10 loss. An analyst estimates that the Kindle Fire, priced at $199, actually costs $209.63 to produce. That said, the device is likely to be much more valuable to Amazon through content sales and the ability to drive more purchases through its website."
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Amazon To Lose $10 Per Kindle Fire

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  • they really need to lock down those tablets if they want to make money off them
    • by Canazza (1428553)

      this is the way it's worked in the Games Console market for decades. Sell the console cheap, make money off licensed games. No different here.

      • by reub2000 (705806)

        Except, that it hasn't always worked out in the video game industry. After spending a significant amount of money on hardware, people aren't exactly enthusiastic about spending a lot more on content. With a lot of free content from places like youtube, project guttenberg, and even amazon itself, they are taking a huge gamble with this tablet.

        • I think it's fair to say Amazon have a good idea of what each Kindle customer is worth from their existing Kindle data. I know the tablets reach a slightly different audience, but they will surely know approximately how many customers are going to continue past the free trial period for prime, and also how many customers will buy apps, music, video and ebooks. I'm also assuming they've made the task of buying content for the fire even easier than Apple made it one the iPad.

          • by reub2000 (705806)

            I don't think it's an even slightly different audience. I think ebook readers target people like me who carry around a few gadgets already but don't like reading things on an LCD screen. To us the fire is a crappy ebook reader that duplicates the functions of existing gadgets. I think tablets are mainly being bought up people without many gadgets, and who need something that can work with a variety of formats. Half these people might just buy it so they can respond to e-mails while waiting for their coffee

  • by blahbooboo (839709) on Saturday October 01, 2011 @11:55AM (#37577772)

    Gosh, these analysts get such huge salaries and most of the time they are wrong. What a great job!

    • by Xacid (560407) on Saturday October 01, 2011 @12:03PM (#37577848) Journal

      I find it hard to believe an estimation like this could even consider a $10 dollar difference not within margin of error. Pretty much non-news here.

      • by obarel (670863)

        What "margin of error"? The *estimate* is $209.63. Not a penny more, not a penny less. Not "around $210" and not "$200+", but exactly $209.63.

        That's either a totally bogus number, or inside information direct from the manufacturer.

        • by icebike (68054) on Saturday October 01, 2011 @01:16PM (#37578388)

          That's either a totally bogus number, or inside information direct from the manufacturer.

          Nah, Neither is my guess.

          Fire up your telephone team and start polling parts manufacturers, who are often only too happy to brag about bagging a big order for wifi chip sets, touch screens, memory, processors, etc. Most of these places will even leak pricing info. The content of a tablet is well established these days. Crank in some custom plastic work (with 40 tablets on the market this cost is fairly well known too).

          Put it in a spread sheet, Crank in assembly, shipping, divide by number of units, an out pops the Bill of Materials cost.

          That's why you get things estimated to the penny.

          Maybe that qualifies as BOGUS in your world, but the story clearly states " analyst estimates". I'm not sure the word "bogus" can rationally be applied to an estimate.

          But it really doesn't matter. Amazon will make up any loss in the first month of ownership due to sales of apps, music, emagazines, and ebooks.

          • But quoting a figure like that (with so many significant figures) implies greater precision than is possible from the input data, even if you do describe it as an estimate.

            If you were estimating the height of a person across the room you wouldn't say he was around five feet eleven and fifty-nine sixty-fourths inches, would you?

            • by icebike (68054)

              But so what?
              When dealing with money people set their spread sheet columns to currency and pay no attention to significant digits or degree of actual precision.

              If anything, this lends more weight to my throw numbers into a spread sheet theory.

          • by fferreres (525414)

            Amazon: Hi, I'd like to enter into a contract to manufacture 10 million parts.
            Manufacturer: sure, let me look at my price list. It's going to cost you $10 per part.
            Amazon: I am getting a BETTER pricing? I think I am going to sell 15 million units in 18 months
            Manufacturer: no, because that would prevent interesting posts in slashdot. By the way, we leak all this info so that wannabe estimators can achieve 100% in their estimates. Sorry Amazon.
            Amazon: Ok, no worries.

            That's probably not how it works. Amazon es

          • by Solandri (704621)

            Put it in a spread sheet, Crank in assembly, shipping, divide by number of units, an out pops the Bill of Materials cost.

            That's why you get things estimated to the penny.

            Maybe that qualifies as BOGUS in your world, but the story clearly states " analyst estimates". I'm not sure the word "bogus" can rationally be applied to an estimate.

            Since you don't seem to know about error propagation, let me fill you in. Anyone who has a decent background in math, and certainly any engineer or scientist should kno

        • by cfulmer (3166)
          There is a third choice: the estimate is calculated to an unjustified precision. . . . and 63 cents? That sort of precision is destroyed if there's a flu bug running around your factory or if you have an abnormally cold winter or if there's a Hurricane anywhere in the world.
        • by PopeRatzo (965947) *

          The *estimate* is $209.63.

          That number, for a 7" tablet seems awfully high.

          Sorry, I just don't believe it's costing Amazon that much to make these things. Maybe it cost them that much to make the first 50, but they're going to sell a LOT of these things.

          I love the 7" tablet size. Much more useful for me than 9-10". If the Amazon Fire has an SD slot, I'll buy three (one for me, my wife and daughter). If not, I'll wait a little longer.

          • what does an ipad or a 10" touchpad cost to make?

            the screen will be more expensive (unless apple got some crazy deal by monopolizing the production) but the rest of the parts are pretty similar with a few back and forth tradeoffs. The 7" might need some smaller, more expensive, versions of parts to get everything to fit, while the 10" may have extra costs in trying to cut power use on other components so that they can power the larger screen with a reasonable battery life.

            It seems like a fair price to

        • by Fnord666 (889225)

          That's either a totally bogus number, or inside information direct from the manufacturer.

          Another option would be that it is a number "leaked" to the analyst, along with the cost breakdown, by the Amazon PR department. I'm sure there is a study somewhere that links sales to how close the sale price is to what is perceived to be the unit cost.

      • by tgibbs (83782)

        And considering that a loss of $10 per unit could add up to substantial cost to Amazon when multiplied by millions of sales, while cutting the price by $10 will not sell appreciably more units relative to selling them at cost, it would be crazy for Amazon to sell them just $10 below cost.

        • by AJWM (19027)

          Not really. It doesn't take many ebook sales to cover that. Three bestsellers at the $9.99 price point would do it, or ten $2.99 books, or fifteen $0.99 books (they take a bigger slice at that price point -- although I'm ignoring whatever goes to overhead on the sale.)

          Anything beyond that is gravy. The $199 is a psychological price point; they'd sell far fewer at $209.

        • cutting the price by $10 will not sell appreciably more units relative to selling them at cost,

          It's psychological pricing. 210 is in the 200's. $199 looks like barely more than $100.

          • by reub2000 (705806)

            Except most of would call that $200. Just like most of us refer to something costing 99c as a dollar.

            Anyways, my best guess is that they will make up the $10 when someone buys a $30 case with the kindle.

      • But if it's true, it's still quite believable.

        First, if any company can expect to compensate such a loss from other sales that are attracted by the device, it's Amazon - they've got their fingers in pretty much everything by now, and with very attractive pricing they're more often than not the first choice for many things (compare prices between iTMS and Amazon MP3 some day...). Given their appstore policies, it's likely that most users would make enough purchases there alone to pay that $10 back to Amazon

        • Prime is so awesome anyways that I can't see why you wouldn't pay for it if you owned a fire.

          It could be worth it for the shipping alone (which is where I get the real utility from it) but when you factor in the ever increasing library of streaming content and the fact that it costs less than netflix...add in integration with the Fire and its completely worth $79 a year.

          Hell, with netflix splitting into 2, I wouldn't be surprised to see people dropping netflix streaming for nu-netflix dvds and amazon st

    • by CastrTroy (595695) on Saturday October 01, 2011 @12:10PM (#37577916) Homepage
      I agree. The only one who knows how much Amazon pays for each individual part is Amazon. These analysts have no idea what kind of deals Amazon has made with their suppliers. When you are dealing in the millions of units, there is quite a bit of negotiating room. Maybe the people who produce the parts are the ones taking a loss (initially) because they figure they can make more as production ramps up, and they would rather not lose the contract entirely. Analysts can make all the guesses they want as to the cost of these things. But something tells me they have no idea what they are talking about. How come the HP Tablet cost $300+ to make, but you can get a netbook with similar bill of materials for $179 retail?
      • And of course, anyone who's ever been near manufacturing knows that the manufactured cost per unit for the pilot run is the same as it will be after you've refined your processes and established blanket POs with all your vendors. /sarcasm
        • And of course, anyone who's ever been near manufacturing knows that the manufactured cost per unit for the pilot run is the same as it will be after you've refined your processes and established blanket POs with all your vendors. /sarcasm

          True. I think the only BOM here is this estimate.

      • by downhole (831621) on Saturday October 01, 2011 @01:07PM (#37578326) Homepage Journal

        I'd bet that even Amazon themselves couldn't produce a meaningful figure for what any particular one costs to make. They're probably buying enough parts from enough suppliers that all of their deals are changing all the time for each particular part. Not to mention the cost of the design process and creating and maintaining the custom software, production line shakeouts, estimated value of future purchases, estimated value of having control over some percent of the market, etc etc. Some department somewhere probably uses lots of Excel formulas and a little black magic to figure out that they'll do all right overall selling them for $199.

    • So iSuppli's word is gospel when it says Microsoft Loses $126 Per Unit on XBox 360 [slashdot.org], but they are mere analysts when they say the Amazon is selling $10 bellow cost.
  • In a relative sort of perspective a $10 loss is not that bad at product launch. A little cost reduction over time, the sale of a book or two, the project could turn profitable in the not so distant future.
    • by Hadlock (143607)

      Yup; the break even point (assuming a 50% profit margin on ebooks for amazon) is about four books. I would imagine the average kindle owner buys at least 10 books. This is the same sort of math you see for consoles.

    • by tchdab1 (164848)

      Wondering if they've estimated price over the projected life of the product, so that the $10 loss figure includes estimated cost reduction/efficiency improvements over time. Meaning they're losing much more than $10 per unit now, and it's still irrelevant if average users buy several dozen items on it.

  • Because it's not as though Amazon is able to get deals on all the parts for buying them in bulk. Yeah, it would cost you $210 if you were to buy all the parts to build your own Kindle Fire, but I don't get why people think it costs Amazon that much.

    • Because it's not as though Amazon is able to get deals on all the parts for buying them in bulk.

      Y'know I think they might have taken that into account. My local friendly electronics store is selling 7" displays for $265, three times the cost estimate in TFA.

      • Because it's not as though Amazon is able to get deals on all the parts for buying them in bulk.

        Y'know I think they might have taken that into account. My local friendly electronics store is selling 7" displays for $265, three times the cost estimate in TFA.

        For one, the cost estimates are for wholesale prices directly from the manufacturer and they're for just the panel. Is your friendly electronics store selling just an LCD panel with no frame or buttons or anything attached to it except a ribbon cable to plug into a circuit board? For two, even if they take general bulk pricing into account, there's no way for them to know what Amazon is paying. Amazon is a huge company and they've probably got contracts to make several million units. You can get pretty good

  • Only $10? (Score:5, Insightful)

    by Sarten-X (1102295) on Saturday October 01, 2011 @11:59AM (#37577812) Homepage

    So a company with the bargaining power of Amazon makes a new product, and can't get the price down $10 more? I find that hard to believe. On top of that, the component prices in TFA are estimates. I see no indication of how accurate they are. I also don't see any point to this story.

    • Re:Only $10? (Score:5, Interesting)

      by melted (227442) on Saturday October 01, 2011 @12:17PM (#37577980) Homepage

      ISuppli routinely lowballs estimates. Sure, the components cost this much. But how much does it cost to deliver them to the factory, put the devices together, test them, package them, write software for them, run the cloud services, etc, etc. It all costs money, and the fewer devices you sell, the greater fraction some of these costs are. So in a way, costs can't even be estimated until you know the overhead, and until you sell N units. And then Apple will sue their ass, further adding to the cost.

      • by alvinrod (889928)
        Delivery costs are relatively low in general, especially when the factories that build these devices use components produced in other nearby factories. Even shipping these from Asia to other markets is fairly inexpensive considering the high value/volume that these items possess. Manufacturing costs are generally considered to be about $10 per device in most tablet/phone estimates that I've seen. The software is for the most part already been written since it's using 2.x Android, the rest can probably be co
        • Re: (Score:2, Funny)

          by Anonymous Coward

          Delivery costs are relatively low in general

          Indeed, especially if they use Amazon Prime shipping.

      • And then Apple will sue their ass, further adding to the cost.

        • You left out Oracle (Amazon is using the Android codebase, which Oracle is suing Google for).
        • You also didn't mention about Microsoft, who has successfully extracted patent moneys from several Android-using manufacturers.
        • Finally, there is Google (who now owns Motorola and their 24,000 patents). Amazon basically used and abused Android (in spirit with the license, of course) to fashion their tablet operating system (which they don't even publicly state runs Android in the first place).

        No, Apple is the least o

    • So a company with the bargaining power of Amazon makes a new product, and can't get the price down $10 more?

      I don't mean to be rude - but don't you think they were doing that already? That sounds like the Homer Simpson School of Management - "Could you make that cheaper?" Uh, OK...

      Whether the estimates are accurate, I couldn't say.

      • by Sarten-X (1102295)
        I expect they already are bargaining as low as they need to. I just apparently expect a bit more than these analysts. $10 is a small enough margin that Amazon could be getting several components for just slightly less than the analysts expect, and be breaking even. Given that Amazon's main revenue source for the Kindle is selling content, breaking even would be a perfect target - then those jerks who buy it to hack aren't costing the company anything.
    • So a company with the bargaining power of Amazon makes a new product, and can't get the price down $10 more?

      With twenty pointy-haired bosses saying this, they could get the price to zero!

    • So a company with the bargaining power of Amazon makes a new product, and can't get the price down $10 more?

      $10 over is perfect. In 3 months it'll be break-even, in 6 months it'll be $20 under. They have additional revenue streams and were able to introduce the very best product now instead of waiting until after Christmas.

  • Along with R&D and marketing, infrastructure etc overhead, it is losing more than $10 per Kindle Fire sale. And this is news to whom? When you expect a steady stream of income for each device sold, you would be stupid not to subsidize it!
    Similar to how many recent video game consoles were sold at a loss when they came out, to ensure a user base.

  • I've seen another one that thinks they're losing $50 each, and another that thinks they're making $50 each (which I really doubt).

    • by tgibbs (83782)

      Yes, this is clearly within error of break-even. Amazon is not going to sell appreciably more phone by taking a $10 loss per phone, so why do it? And since the main goal is not to make money on the hardware, but rather to sell Amazon's other products and contents, selling the tablet essentially at cost makes the most sense.

  • Now that's a good reason to buy one!
    • I don't understand the hate. Amazon is one of tthe more customer-friendly companies around, and they actually care about their products. Similarly they aren't locking the Fire down, instead they've said they're not going to do anything special to prevent geeks from rooting and hacking around with the devices.

      Tbh, I'd wish there was a few more companies like Amazon, not less.

      • My reasons to dislike them are their silly one-click patent, that they caved to politicians by dumping Wikileaks, and that they treat their workers like crap. I recognize other people may not care about these issues and like them fine, or conversely may dislike them for other reasons.
  • I don't see this as being any different as Sony or MS trying to push out their gaming consoles at a loss - just business as usual. Amazon's true advantage over direct hardware manufacturers is that they can afford to risk gambling with loss leaders while direct manufacturers like ASUS and Archos cannot. Sure, they may probably make less profit, but the opportunity to gain marketshare is too great to ignore - which is the point: to get _everybody_ to use amazon's services.
  • At the rate that electronics components drop in price, it'll only be a "loss leader" for a few months at most. After that, it'll be a break even or small profit-maker on its own - regardless of the amount of content consumed.
  • CorporateSpeak (R) translation follows:

    The device will be locked down HARD.

    Sam

  • Content providers have only been doing this for DECADES!
    Atari did this back when the 2600 first came out. Sell the console cheap, and require all software developers to pay them for the privilege to make games for their console.

    • by Belial6 (794905)
      No, when the 2600 came out, Atari made all games in house, and thought they could use the courts to prevent any 3rd party developers from making games for "their" system. Activision was formed from previous Atari employees, and the games they originally made were not endorsed in any way by Atari. In fact, Atari sued them to try to stop them. It was from that incident that the idea of licensing 3rd party software developers arose.
      • by Thing 1 (178996)
        And, damn did those Activision games have more pixels! That was a good precedent. (I also had the ... Iforgetthename, it was a cartridge twice as large and loaded games from cassette tapes, which were even cooler than the Activision games; there was an Asteroids clone, and a Dragon Stalker or something like that which I recall spending many hours on.)
  • by cats-paw (34890) on Saturday October 01, 2011 @01:25PM (#37578452) Homepage

    These kind of stories always show up - but no matter how much they think they know about the production they are STILL
    underestimating the amount of buying power somebody like Amazon has.

    Amazon is probably quoting an _initial_ production run of 10 million units. They are getting excellent pricing.
    There is no way they are losing a penny on these things.

    • It doesn't matter if they lose a few bucks on each tablet sold. Amazon REALLY doesn't care. They can happily eat a loss on each tablet because they are not selling tablets. They are selling Amazon content delivery devices. The purpose of an Amazon content delivery device is to get you to buy content. If it takes a net cost of $10 to get one in your hands, they will happily pay. In fact, on the initial run, they will happily pay far more than $10 net dollars to get their Amazon content tube plugged int

  • ... and other tablet manufacturers. Selling at a lost, though always a risk, can be an acceptable maneuver.
    • by Cigarra (652458)
      Only if you also control the content market, and can make up for the losses there. That worked for the PS3 and works for the iPad, since Sony and Apple control the content delivery in their platforms.

      Do you care to explain how could it have possibly worked for HP?
  • I point blank asked my husband if he wanted a Kindle Fire for Christmas. $200 is within my price range, whereas a $500 iPad is not. He said "not really" but then suggested we snag one for his mother. The aggressive pricing is going to make these the top seller this year in electronics. For people who are merely content consumers they are perfect. (If you're a content creator, though, it's not enough, which is why I think he was "meh" on the whole idea and is sticking with his laptop.)
  • Let me guess, margin of error of up to +/- 5%.
  • considering each Kindle Fire is a POS/cash register for Amazon.

  • If the Kindle fire is successful and sells in big numbers the cost of production will likely drop quite a bit.

  • by edremy (36408) on Saturday October 01, 2011 @08:49PM (#37580872) Journal
    Back in the days when the first gen Kindle had just come out, my boss and I met with an Amazon rep to discuss doing an e-textbook trial with them at the school where I work. We ended up not doing it mostly due to cost, but the rep mentioned off the record that even at $400 each they lost money on the first gen Kindle.

    It's four years later. I just today got one of the new $79 4th generation e-ink models. My bet is that they are losing money on this device big time- there's no way in hell it cost $79 to make.

    Amazon doesn't care. They're selling the razors at a loss. But I just bought two books for my new toy. They won't be the last

    Ka-CHING!

  • I found a MIMO UM-720S Touch Screen USB Powered 7 Inch Swivel LCD Screen Mini Display for $174.99 rather than the $87 quoted in the investigative journalism research article.
    http://www.amazon.com/MIMO-UM-720S-Screen-Powered-Display/dp/B002QFP4Z8 [amazon.com]

    So if they get those then they will lose more like $98 per Kindle.

    And, I could sell them enclosures for $113, not the $11 they quoted.

    Then Amazon could lose $200 per Kindle. Now that's a really big scoop.

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