Hardware costs might be overstepping the selling price of Kindle Fire, but Amazon is generating enough money in content sales, and prime membership that we can easily call it a very profitable venture.
According to a survey by investment banking firm RBC, each Kindle Fire sold is generating over $100 in additional revenue thus making up much more than initial loss of around $17.
“Kindle Fire unit economics are likely to be more favorable than consensus expectations, based primarily on frequency of digital goods purchases. Our assumption is that Amazon could sell 3-4 million Kindle Fire units in Q4, and that those units are accretive to company-average operating margin within the first six months of ownership. Our analysis assigns a cumulative lifetime operating income per unit of $136, with a cumulative operating margin of over 20 percent.”
– RBC Capital analyst Ross Sandler said in a research note to clients
As you can see in the table, major amount of additional revenue is coming from e-book sales as well as apps, while physical good might not be generating much revenue that are strengthening company’s core business.