Amazon losing small, winning big on new Kindle range

November 10, 2011

Amazon has hit on a winning strategy with its new Kindle range: sell at a slight loss and make the money back with interest at a later date.

The Kindle is a hugely successful device at this point in time. I was one of those who remained pessimistic about Amazon’s chances of achieving anything with the Kindle despite its sales continually rising. And when Apple unveiled the iPad I essentially called time on the Kindle. I’m happy to admit I was wrong on that score, and actually, with the Kindle Fire Amazon is fighting back in a big way.

The price of the Amazon Kindle has consistently dropped since the first version made its debut. So much so that there is speculation that one day the hardware will be offered completely for free. We haven’t reached that point quite yet, and may never do so, but it appears Amazon is already selling the Kindle at a loss.

According to MainStreet, it costs Amazon $84.25 for every new $79 Kindle it sells. That’s a loss of just over $5 per unit. This is the cheapest version of the Kindle and comes with advertising. So Kindle can immediately make up the shortfall between manufacturing costs and sale price.

This information comes on the back of similar investigation into the cost of manufacturing the Kindle Fire, Amazon’s Android-based media tablet that is its answer to the Apple iPad, but not really. That suggested Amazon is losing around $10 on each Kindle Fire it sells. And it’s selling a lot of them. According to DigiTimes, Amazon has increased from 4 million to 5 million units before the end of 2011.

This all suggests Amazon has a winning strategy on its hands. Amazon is effectively selling its Kindle hardware at a loss knowing full well that it can claw the profit back afterwards by selling digital content. Every eBook, song, album, film, or TV show it sells through the Kindle and Kindle Fire represents profit, much of which it won’t ever have seen had it not sold the hardware in the first place.

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One Response to “Amazon losing small, winning big on new Kindle range”

  1. geek:

    Amazon business is selling content and why some still refuse to understand the model defines stupid. Get the coffee maker for free, get the razor for free, get 1 hotel night free with the credit card.

    Amazon went from the number #1 book seller to the number #1 e-book seller and will be number #1 for movies and other video media over time at the same time growing their retail business.

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