Amazon’s basic Kindle, the K4, costs around $79 for parts and $5 for assembly. With a retail in the US of $109, Amazon are earning around $25 for each K4 that they sell. (Actually, it’s less than that; don’t forget they have to pay for shipping, overhead, and so on.) And if you get one of the ad-subsidized K4 for $79 they’re losing money even before they ship it to you. The same goes for any of the K4 that you might buy retail; it probably costs Amazon more to make and distribute the K4 to Walmart than they get for each unit.
I’m not surprised by the narrow cost margins, but it does raise an interesting issue. If the K4 costs this much, then the Nook Touch has to cost more, right?
That would mean that B&N are in an even less comfortable position than Amazon; they’re probably literally losing money on each $99 Nook Touch. Unfortunately for B&N, they’re stuck; they can’t not play price chicken with Amazon. And what’s even worse is that they’re playing chicken with a company that is willing to lose money on a product forever.
At this point I have to wonder if B&N and Amazon are each hoping that the other sells the most ereaders; that way the other will suffer a greater financial loss.
Yes, I know that we’ve seen research data that shows ereader owners buy the most ebooks, but do they really buy enough?
Direct Material Cost
- Display Module: $30.50
- Main PCB: $30.37
- Other – Enclosures / Final Assembly: $15.08
- Box Contents: $2.06
- Misc Interface PCBs: $0.59
Direct Material Cost Total: $78.59
- Manufacturing Cost: $5.66
Total Materials & Manufacturing: $84.25