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Amazon loses money on each Kindle Fire sold (on purpose)

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Reuters

(Read caption) The Kindle Fire, the new tablet from Amazon, is shown at a press event in New York City.

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Amazon is actually losing a couple bucks on every Kindle Fire tablet it sells. According to iSuppli, a market research firm, the cost of the components required to build a Kindle Fire tablet – from the battery to the memory to the plastic shell – totals approximately $185. Add in manufacturing and assembly fees, and that figure rises to $201.70. That's $2.70 more than the $199 price tag on the Fire. 

By way of comparison, the 32 GB version of the iPad 2 costs about $326 to build. But Apple sells the device for $599, turning a nice $175 profit on each machine. (And Apple has sold an estimated 28 million iPad tablets since the device first hit shelves. In the last quarter alone, Apple unloaded 9.3 million iPads 2 tablets. You do the math.)

The iSuppli report, of course, is further evidence that Amazon views the Kindle Fire not as a money-making device in itself, but instead, as a portal into the vast Amazon ecosystem. Buy a Kindle Fire, the logic goes, and you'll probably buy at least a few Kindle e-books, and probably some Amazon video content, to boot. You may even sign up for Amazon Prime, a $79-a-year service, which includes a free book borrowing program. 

As one critic wrote recently, in a generally positive review of the Fire, the device is "perhaps the best, tightest integration of digital content acquisition into a mobile device that we've yet seen. Instead of having a standalone shopping app the entire tablet is a store – a 7-inch window sold at a cut-rate price through which users can look onto a sea of premium content. It isn't a perfect experience, but if nothing else it's a promising look into the future of retail commerce."

Of course, Amazon has long pursued this type of retail commerce. Consider the original Kindle e-reader, or its more recent iterations, which have sold at bargain-basement rates – sometimes close to a hundred bucks. Apple, gunning for the luxury market, has produced a beautiful, successful and completely unnecessary tablet. Amazon, with the Kindle and Kindle Fire, has created something else entirely: a series of extremely-profitable sales portals. 

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