Amazon Tablet Costs $203 to Produce
Hardware repair service iSuppli have done one of their traditional teardowns on the Amazon Kindle Fire, a $200 device. It’s always interesting to see how much the components that make up the device cost without factoring in all the extra stuff required to get it from production to consumers.
They’ve revealed that the Kindle Fire only uses about $203 worth of components. This is interesting as the trend is always that a device’s retail price is much higher than its cost of production.
After factoring in paying the workers who create, package and ship the units, paying for actual shipping, paying for marketing and paying for materials, some OEMs still have a decent profit margin when their device first ships. Amazon has none.
Amazon’s device model is different and actually makes a lot of sense, though. Instead of relying solely on hardware sales to produce profit after components get cheaper to buy, Amazon is relying on the tablet to drive their growing ecosystem. Sales they make on apps, books, videos and music will be their main revenue generator and may be even more fruitful than revenue from hardware sales over time.
It’s not unlike console OEMs who lose a ton of money on each console sold for their first few years on the market but make up for it with digital content and physical accessories that are heavily marked up.
The difference, of course, is that Amazon’s margin for loss starting out with the Kindle is much smaller and it will be easy for them to turn a profit soon. We imagine the lack of cameras, 3G/4G and Bluetooth radios and more are the main reasons they’ve been able to keep their MSRP close to their cost of production but it’s impressive nonetheless. [via ATD]