The hardware profitability may be low but I think that key is that the tablet brings the Amazon store-front, which we usually access on a PC, to the tablet screen. That should be the main target of profit instead of the hardware.
Amazon is not directly competing w/ Apple on the hardware-feature front but more on its price and Amazon's broad service and catalog.
Now imagine if they start a movie/music subscriptiion like Apple does then they would give stiff competition. Hadrware is the key enabler but the profits lie in software services. So they appear to have got the equation right.
I think Amazon is betting on the volume for Kindle fire. With the price tag set at $199, it is expected to be sold in large volume. People who are hesitate at shelling out $500 on an iPad but need a handy tab (like me :)), will definitely think about buying it. Though I don't think iPad is going to give-up market share to Kindle Fire as the features doesn't compare "apple to apple" and the people who wants to get an iPad will still buy it. Kindle Fire seems to have a good potential to dominate the low cost markets.
well, i calculate the profit margin other way: Amazon is making 50USD for 150USD i.e. 1/3rd profit. Now if Apple is making $200 for $300 then its 2/3rd profit....so kindle is making half the profit of what Apple is making...Dollar of Dollar. Remember that Apple's products are usually high profit margin.
@Himanshu, you are right Kindle is making half the profit but look at the sales volume. More and more people will buy kindle because its available at low price.Moreover it would be easy for amazon to market its tablet.
does this tablet is coming without camera and other wireless interfaces or it is designed with some lower features. Looking forward to see the complete tear down and comparision with play book. Certaily ti is gaining a good traction now.
Most people who buy fire will subscribe to Amazon Prime at 79$ for the content. And those who prime subscription shop more (regular stuff) compared to people without prime. Another way amazon has justified the low upfront cost.
I currently have a kindle. (old keyboard type = $139 Kindle).
Since July 2011 I have bought roughly about 100 books at 1 to 8 dollars each. Say average is about $2/book (most books I buy are either $0.99 or $1.99 but some up to $8 when I really want the e-book). If I'm an average Kindle and e-book buyer then this translates into approximately $140 that Amazon has made from me on e-books alone (so far). (On e-books Amazon makes 65% and 35% is royalty to the authors of the e-books.)
So Amazon will be making much more on the contents (e-books, mp3, movies, magazines, etc.) than on the devices themselves.
I have to admit, Jeff is a business genius.
God willing, I plan on getting a Kindle Touch for Christmas 2011.
If the dollars in this article are correct, the profit margin for Apple is ~30% and for Amazon is %25. That's not as much difference as the article implies, nor unmanageable. The real story is that Amazon has done a fine job of creating a small, entry level tablet with just the right mix of features. Now they can price it at $199 so it's a practical gift. $499 is too steep to drive the same volume. Any other manufacturer could have done the same, but they don't have the content - that's the biggest part of the story.
No magic here, just good engineering and good leveraging of core value.
I agree with the premise that despite the missing features presnet in higher end tablets, this fire will burn hotter for the lower entry cost, there is some genius in Bezos despite the haters. Great to see this presure push others to improve on their pricing the higher end tablets, to remain viable in this though market enviroment.
LIke others I feel this tablet is more oriented as a distribution and media consumption device for Amazon products than a front on competition to Apple's iPad, It does create massive problems for anyone else making an Android based tablet.
Amazon may well amortise the cost of this tablet over 18 months or longer (a lifetime for mobile products) because it will essentially continue to perform its primary functions as portal to Amazon.
One could say that a customer buying one of these is basically subsidising Amazon's revolution in product distribution.
It's clear that by running only smartphone apps its not really designed to run sophisticated tablet apps and I can't see Amazon trying to get Android 3 or 4 onto their tablets. More likely is they buy WebOS and take control of the OS themselves. Anyway good on Amazon for innovation and disrupting the now boring Android tablet market.