New Cost Estimate for Kindle Fire – $150
News broke on Friday that (according to one analyst) the Kindle Fire, Amazon’s new Android tablet, cost round $210 to make.
The news of course was posted in all the gadget blogs (including me) where it was endlessly touted as proof that Amazon were subsidizing the tablet in order to attract buyers and lock them in to Amazon’s content stores (Kindle, MP3, Video,etc).
Update: The parts cost experts at iSuppli released a new estimate yesterday. Now that they can see the guts of the KF, they think it cost around $202 to make.
I took an alternative view that we didn’t really know what the Kindle cost so it was a little early to say that it was subsidized. Oh, I still think it is, but not because of the hardware cost.
One of my readers has pointed me at a different price estimate that came to a completely different result. UBM TechInsights firmly believe that the Kindle Fire only cost around $150 to produce in large quantities. Their estimate is about as reliable as the one from iSuppli; given that neither company actually saw the insides of the Kindle Fire or even put their hands on it, it’s safe to assume that some WAGs (wild ass guesses) went into each report.
On the other hand, UBM TechInsights have also torn down the BB Playbook, and they estimate that the Playbook cost around $170 to manufacture. Their Kindle Fire estimate is based on the Playbook parts that the Kindle Fire doesn’t have: the cameras, Bluetooth, GPS, and a microphone.
I have greater faith in the TechInsights estimate because of where they started, but it doesn’t change the fact that Amazon will still lose money on the Kindle Fire. If that makes no sense ($150 is less than $200) then you probably made the same mistake I did on Friday. I forgot to factor in the retail cost. Lucky for me, a reader by the name of Sherri pointed out my goof.
Amazon will be selling the Kindle Fire through their retail partners, and so far I know that Staples and best Buy have already confirmed that they will sell the new tablet. Amazon will have to heavily discount the Kindle Fire when they sell it to the retailers. It’s normal to see retailers buy for 40% to 50% off the retail price (they have to run a business, of course).
Amazon will be losing money on every tablet that they sell through their retail partners. But that is likely worth the expense; it saves Amazon from having to run their own showrooms or retail operations while still letting potential customers play with the new hardware.
Peter October 3, 2011 um 2:09 pm
There may not actually be a retail cost in the traditional sense.
A careful reading of the notes to Barnes and Noble’s financial statements shows that they have an arrangement with other retailers where future revenue from e-books is shared with the retailer rather than a cut of the sale price.
So maybe Amazon is doing that too.
But I doubt it- Amazon doesn’t have goodwill from fellow brick-and-mortars like Barnes and Noble does. So they probably have to pay a traditional full cut.
Also, whether or not they deserve it, Microsoft will want licensing fees on every unit sold.
fjtorres October 3, 2011 um 3:43 pm
Unlike B&N, which until recently was nothing but a retailer, Amazon has long been a technology industry player with a nice and juicy portfolio of both hardware and software patents. They most likely already have a cross-licensing agreement with MS so any potential discussion with MS about android will likely be civil and quiet, unlike B&N’s loud invitation to be made an example of.
fjtorres October 4, 2011 um 7:50 pm
Here, 18 months ago, Amazon and MS signed a broad cross-license deal: