Amazon's Fire will sell millions, but perhaps at a loss

Amazon's Fire will sell millions, but perhaps at a loss

Summary: Two unofficial reports suggest that Amazon's forthcoming Kindle Fire tablet will sell very well at $199, but the cost of components may mean that Amazon will make little if any profit on the hardware. However, this was predicted.

TOPICS: Tech Industry

Two unofficial reports suggest that Amazon's forthcoming Kindle Fire tablet will sell very well at $199, but the cost of components may mean that Amazon will make little if any profit on the hardware. However, this was predicted. Amazon already sells Kindle e-readers at close to break-even or less, making up the difference in increased sales of ebooks and other products.

American research firm eDataSource was first off the mark with a press release estimating that "sales of Amazon's new Kindle Fire reached 95,000 units during the first day that the device was made available through Amazon's website." This was almost four times its estimate of 25,000 sales of the other three new Kindles announced at the same time.

These estimates are based on "purchase receipts received by email" from "eDataSource's panel of 800,000 inboxes", according to chief executive Carter Nicholas. "Within hours we can get a read on hot product launches based on sales from leading eCommerce websites," he said.

Further unconfirmed evidence appeared earlier today. In Leaked Sales Numbers Suggest Amazon Kindle Fire On Track To Outsell iPad [Exclusive] , the Cult of Android blog said: "A verified source within the Seattle based online retail giant has provided Cult of Android with exclusive screenshots of Amazon’s internal inventory management system Alaska (Availability Lookup and SKU Aggregator). These leaked shoots show that orders for Amazon’s Android-based tablet are racking up at an average rate of over 2,000 units per hour, or over 50,000 per day."

"Those numbers make the Kindle Fire’s launch likely to be the biggest tablet launch in history, beating both the iPad and iPad 2 in first month sales."

The Cult of Android's blog post added: "Despite selling for up to $100 less, the 6-inch Kindle Touch is being outsold by the Kindle Fire at a rate of ten to one, and has only racked up about 20,000 pre-orders to date. The numbers for the $149 Kindle Touch 3G are even worse: only a few more than 12,000 people have ordered one so far."

The price is right

The Kindle Fire is attractive partly because it's half the price of an Apple iPad 2 or the RIM BlackBerry PlayBook, which is a similar 7-inch tablet. Research company IHS iSuppli has performed what it calls a "preliminary virtual teardown" of the Kindle Fire -- it doesn't have a real one to take apart -- and put the "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", says iSuppli.

Presumably the number has been heavily influenced by the PlayBook, which we know is made by the same Taiwanese contract manufacturer, Quanta.

Amazon stands to make about $10 in profit on each Kindle Fire sale, including content and accessories. However, the payback will come not just from sales of ebooks, TV programmes, movies, apps, games and other digital content but from sales of physical products. iSuppli says:

"The importance of this strategy cannot be underestimated. So far, no retailer has managed to create an umbilical link between digital content and a more conventional retail environment. With Kindle, Amazon has created the most convincing attempt at this yet, and it is doing so by using established retail tactics: deploying content to get shoppers in the door, and then selling them all sorts of other goods. This is exactly how Wal-Mart, Target and others use a similar weapon -- in their case, DVDs. 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."

Amazon is extremely unlikely to confirm any of this speculation. It has remained extremely secretive about its earlier Kindle e-readers. It hasn't provided any numbers to support its claim that the third-generation Kindle was Amazon's best selling product of all time worldwide.

However, Kindles rapidly occupied the top 12 spots in the Best Sellers in Electronics list, with the Kindle Fire being followed by the new ad-supported $79 Kindle (not available in the UK). The $99 Kindle Touch took third place with and the $149 Kindle Touch 3G in fourth.

If current orders turn into regular sales, Amazon could certainly ship 20 million Kindles a year. This would put it in a very comfortable second place in the e-reader/tablet market behind Apple's iPad.


Topic: Tech Industry

Jack Schofield

About Jack Schofield

Jack Schofield spent the 1970s editing photography magazines before becoming editor of an early UK computer magazine, Practical Computing. In 1983, he started writing a weekly computer column for the Guardian, and joined the staff to launch the newspaper's weekly computer supplement in 1985. This section launched the Guardian’s first website and, in 2001, its first real blog. When the printed section was dropped after 25 years and a couple of reincarnations, he felt it was a time for a change....

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  • Its not the price of the Kindle that should be concentrated on. As with the Sony Playstation it will be the publications and subscriptions that provide the revenue. Simples!!
  • Certainly surprised by the 'low numbers' (@5000 a day - its still 1.8m sales per year!) for the Kindle Touch, which unlike the Kindle Fire isn't a compromise on screen resolution, weight, and battery life, for me, its pretty much the perfect ebook reader.

    The Kindle's growth has been fairly organically driven, great feedback from friends and family. I'm not sure the overall experience of the Kindle Fire (everything it does is a compromise) will have the same result once its actually in the hands of the buying public.

    My money is on the Kindle Touch long term, but then this is the American Market - Music, Movies are always going to have a bigger market than books.

    Still for streaming music, a bit of web surfing, watching the odd video, and reading a book inside (if slightly narrow in portrait mode) - linked to Amazon's slick purchasing / cloud computing, its a great first offering and cheap to boot.

    I'm just underwelmed by the 1024x600 resolution even if it is IPS, like a netbook - Once you have it, I'm sure you'd be wishing you'd spent a little more on something with a slightly higher resolution, but that will surely come from Amazon later on, if sales beat expectations. Weight and Battery life and of course cost, have swayed Amazon to go with this lower resolution, to start with.

    Problem I see is that if your in the market for an extremely good ebook reader such as the Kindle Touch, you'll probably already own an Apple iPad, if you want to own a tablet at all.

    The iPad Tablet Market is going to be a much more difficult nut to crack, I don't think Amazon have done enough with the Kindle Fire.
  • Kindle Fire doesn't have microSD slot that Nook Color has thus it is stuck with 6 GB usable internal storage unlike Nook Color that can get up to 32 GB card in. Kindles are made to be almost like a "dumb terminal" of the past to make sure you're tied up to Amazon's storage on the web (for which you need Wi-Fi connection to get to.) and you can only store content you get from Amazon there, not other files and they can spy on your web activities through the new cloud-integrated web browser. Also, VERY IMPORTANT – lack of microSD slot means that if you decide to root your Kindle Fire, you’ll have to root the actual device thus there will be no coming back. On Nook, you can make it boot from a “rooted” microSD card and if you want to get back to the original Nook you can just take out the card and reboot. Nook Color still has the best on the market anti-glare coated screen that is better for reading/viewing outside.
    B&N is coming rumored to be coming out with Nook Color 2 shortly that will sure to have Netflix app among others (you won’t find it on Kindle).
    Nook Touch is still better designed than even the new Kindle Touch with battery lasting two months with ONE hour reading a day with Wi-Fi off thus it's still twice as long as new Kindle's two months with HALF and hour a day with Wi-Fi off. It looks like Kindle didn't get any battery improvement in the new model, they only changed the test condition. More, Kindle Touch still flashes black on each page turn while Nook Touch reduces the flashing by 80%.
  • Amazon Kindle Fire is selling approximately 20,000 units every day, this is an huge success. Amazone is Competing with Apple as Apple Ipad 2 sold approximately 1 million units of the iPad 2 over its first weekend following launch, adding up to around 2.4 million over the course of the month. As such, there is still plenty of time for the Kindle to rack up the numbers and perhaps challenge Apple like none have ever quite managed before.
  • While the headline price is an eye catcher the Kindle fire is pretty much just a vending machine for Amazon content, that is why they can sell it at or even below cost. As people get to realise this I think that the fires glow will quickly diminish as the realisation dawns that a tablet is not the best device for reading on and at 7 inches is not that good for watching video either. If the hackers manage to jail break it, its going to be game over as Amazon will lose control and will effectively be knocking out expensive hardware at a loss with little or no payback on content sales.