Amazon cuts Kindle HD prices in U.S., may swipe Android tablet share

Amazon cuts Kindle HD prices in U.S., may swipe Android tablet share

Summary: International distribution of the 8.9-inch Kindle Fire HD is also likely to boost sales for Amazon's tablet as a shopping kiosk business model.

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Amazon has cut the price of its large-screen Kindle Fire HD to a starting price of $269 from $299 for a Wi-Fi version and the $399 for the 4G version.

The lower price for the 8.9-inch Kindle Fire also came with rollouts in the United Kingdom, Germany, France, Italy, Spain and Japan.

In other words, the international distribution and price cuts in the U.S. are likely to mean that Amazon will take some share in the Android tablet race.

Amazon said the lower prices come courtesy of higher production volumes and lower costs. Of course, Amazon can pass along those costs because the Kindle business model revolves around break even hardware and add-on services and content.

It's also possible that the Kindle model is used just to juice Amazon Prime subscriptions, which include video streaming.

In a report, last month Morgan Stanley analyst Scott Devitt outlined the importance of the Kindle ecosystem to Amazon.

Along with the Kindle ecosystem being a material contributor to Amazon.com’s revenue and future growth, the franchise is highly accretive to profitability. While Kindle hardware devices are sold at a loss, we believe Amazon.com generates attractive margins on digital media sales. For agency eBook pricing, we assume Amazon.com keeps a 30% take rate while for principal eBook pricing, we assume Amazon.com sells at a 10% take rate. For music and movies/ TV shows, we assume Amazon.com has a 10% and 15% take rate respectively. Further, we assume 3% of digital media revenue as operating expenses related to credit card fees and technology /development. Based on our assumptions, we estimate that the Kindle ecosystem represents about 25-30% of Amazon.com’s operating profit.

Bottom line: Even if Kindle Fire sales are so-so, Amazon will benefit.

Devitt is conservative on Kindle Fire adoption through last month. It remains to be seen if Amazon's latest moves change those projections.

kindlefirechart

 

Topics: Tablets, Amazon, E-Commerce, Mobility

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10 comments
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  • The Walmart Mentality

    The hardware and OS are sold at cost or even as a loss leader to get you in the store, this is Google's idea too. Apple makes big profits on both but will have to take the hit on their hardware margin to compete. The most to lose here are MS in a price war which looks like it's looming, they have had the highest margin in the business and if the try to keep them they will end up pricing themselves out of the market, they have no alternative except to join the price reduction war.

    All in all good for the end user as computing costs get driven down.
    Alan Smithie
  • thank you

    google and amazon for helping to drive down prices. Imagine if apple and/or MS were still running around with no competition, what prices would be like. Nice thing for google and amazon is that their OSs/tablets, etc are just icing on the cake. Particularly in google's case, they benefit from whatever device we are using.
    drwong
    • No free lunch

      It's just good that there are now more ways to pay. It's just up to the user to choose how they'd like to pay.

      I'm an old wine gum, so be it google, amazon or MS, I'd sooner pay upfront and not have the adds and slightly less user tracking. Just personal choice. It's the kindle thing... I couldn't stand the thought of saving 20 dollars and having ads on it. And no, it's not a case of can afford it, it's just more saving.
      MarknWill
      • I've been buying ebooks from Amazon for one to five bucks.

        Amazon is cutting out the publisher as middle-man and passing the savings onto me. I'm a Neal Stephenson fan and just read the last "Mongoliad" book which was delivered to me for 4.99. I paid a buck for "Turing Evolved" by David Kitson and four dollars for "The Answer is Never Magic" by Robert Porter. Bestsellers are cheaper than paperbacks again, now that the agency model of overcharging, thank you Apple, has been declared illegal. I don't get how I'm paying extra on the backend.
        rp518
        • I don't understand.

          I use kindle too.

          It cuts out publishing houses, not apple. Additionally the kindle price war is making it easier for unknown authors to get noticed, but harder to make a living. A 150,000 word book that took over a year to write has to sell a lot of copies at dollar a download before amazon's commission.

          I literally don't understand your point. You seem to be talking about amazon market place, not their device cost? Which is what I was talking about... How they discount the device to tie you to the marketplace?
          MarknWill
  • It's not a tablet.

    jhcrook
    • Yes, it is.

      Turismo
      • No it is not

        The Kindle HD devices are "Media Consumption" Devices.

        The Kindle HD version of Android is handicapped and the content of its app store is anemic compared to Google Play. No Google Apps [gmail, maps, etc] are available... you have to "sneaker net" Google apps onto the device... but even then "Play" is not available.

        Among the added features Amazon offers is free email scraping that is used to send you recommendations. I had the upsetting experience of having a book on "How to write a Eulogy" offered as a recommendation after my father passed away. So only use the installed apps if you are willing to have Amazon scrape your personal information to use for marketing more media, e-books, or services.

        If you want a "general purpose" tablet, do not buy a Fire HD
        jhcrook
  • Competition Is Good

    We saw the same thing happen when the Kindle Fire first appeared, substantially undercutting the other tablets available at the time. Did the other Android vendors take it lying down? No, they bounced back with even better, cheaper products.

    The same thing will happen this time, as sure as night follows day.
    ldo17
  • Video Streaming - US Olny

    The Video streaming is US only, despite Amazon owning LoveFilm in the UK - The dominant paid for streaming services, with Netflix a new entrant, and much other competition from other services SkyTV and many other free services like the BBC iPlayer.
    neil.postlethwaite