The most important question that remained unanswered till now was the cost of manufacturing of Kindle Fire tablet. Companies never reveal such details, but research companies like iSuppli estimate the spending and in this case according to the preliminary figure, Kindle Fire’s bill of materials (BOM) cost at $191.65. With the addition of manufacturing expenses, the total cost to produce the Kindle Fire rises to $209.63.
So, with a spending of around $210, how will Amazon make money when it is going to sell Kindle Fire for just $199. The initial profit or even recovering the cost of manufacturing will come directly from the sale of digital content – e-books, videos, apps and music. Company will also look to sell its Prime membership to its users by first giving a free taste of it along with Fire and then charging $79 of a year’s worth.
According to HIS, the expected sales of digital contents will give Amazon a marginal profit of just $10, but the real money is going to come from the sale of physical goods.
This 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.
It is similar to the razor-blade model followed by Gillette that sells razors at a loss and makes up the difference from profitable sales of blades later, explained IHS iSuppli Analyst Wayne Lam to Reuters.
But, this is a lot if Amazon is looking to make a profit in these lines and these are some really big expectations as there is no other company that has been able to sell more than the digital content with the help of tablets. Amazon has a big road in front of it and it has what is needed to change the scenario.