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.

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

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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