Amazon’s Losing Money on Every Kindle Fire It Sells

Kindle FireAmazon’s Kindle Fire won’t hit the market until Nov. 15, but it’s already topping the giant online retailer’s bestseller chart. Its specifications are mediocre at best when compared to the iPad and other Android tablets. It has no camera, 3G capability and GPS.

The on-board storage of a modest 8GB and it’s not expandable. Yet, it’s selling like hot cakes. Why? Because $200 is ridiculously cheap, even when placed next to cheap Chinese knock-offs (the usable ones, at least).

In fact, it’s so cheap that Amazon won’t be making any money through sales of the tablet. It may be losing money for every Kindle Fire it ships. According to an analysis by iSuppli, the cost of Kindle Fire’s material (display, battery, memory, etc) is an estimated $191.65. With an estimated manufacturing cost of $17.98, Amazon would have to fork out $209.63 for every tablet it makes.

Kindle Fire hardware cost

No Margin, No Worries

Amazon’s business strategy is similar to most printer makers. They’re willing to sell at low margin because they’ll be able to recuperate the difference by selling expensive ink cartridges.

Getting the Kindle Fire into millions of households is akin to building brick and mortar retail stores in every of them. Amazon is hoping that these users will eventually buy something from it, be it digital content like apps and movies, or physical items like actual printed books.

So Amazon will make money out of the Kindle Fire as long as users don’t abandon it in favor of offerings from Apple or other Android OEMs — or until the device goes kaput.