Amazon is selling the Kindle Fire tablet at a loss, according to research from IHS iSuppli. iSuppli’s recent initial virtual teardown of the device found the Kindle Fire carries a $191.65 bill of materials (BOM), with total production cost, including manufacturing, hitting $209.63. The Kindle Fire retails for $199.
The preliminary virtual teardown of the Kindle Fire estimates that display/touch screen is the most expensive subsystem of the device, at $87.
A $9.63 loss on every unit sold for Amazon goes at least a little way toward proving out the theory that the company is seeking mass adoption of the Fire in order to sell more digital content – movies, music, apps and TV shows – offered through its various virtual outlets.
However, iSuppli suggests there’s even more to Amazon’s strategy than just selling digital content. Andrew Rassweiler, senior director and principal analyst of teardown services for iSuppli, suggests that the Kindle Fire is directed at facilitating the sale of physical goods as well.
“So far, no retailer has managed to create an umbilical link between digital content and a more conventional retail environment,” wrote Rassweiler in a release discussing the results of the teardown. “If doing this means that Amazon must take a loss on the sales of digital content and tablet hardware, it will be well worth it in the end.”
Rassweiler says the business model is unique to Amazon. “No other tablet brand or e-book reader operates such a broad retail service, which generated $34 billion in revenue in 2010. Conversely no other retailer can offer a tablet specifically designed to promote sales of its goods,” he wrote.
The strategy differs greatly from the one employed by Apple, which uses the sale of content through its tightly gated iTunes ecosystem as a way to sell more hardware. Rassweiler says the low $199 price tag on the Kindle Fire could be very disruptive in a tablet market that hasn’t quite found its legs beyond Apple’s iPad.
“With its lower pricing than the iPad, and its positioning as a super eReader, the Kindle Fire may serve in fact to expand the tablet market beyond current expectations. As such, the Kindle Fire potentially could become the No. 2 selling tablet after the iPad,” Rassweiler wrote.
