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Kindle 2 Tear-Down Reveals Price of Components
adeelarshad82 writes "Amazon's wildly popular Kindle 2 got a good old fashioned tear-down from the folks at market research firm iSuppli. According to the organization, the Kindle 2's manufacturing cost is almost half as much as its retail price."
the Kindle 2's manufacturing cost is almost half as much as its retail price
So . . . ?
Is this supposed to be some new business model. I remember working at Monkey Wards and they would raise the prices 400% and then have a 1/2 off sale.
It's the American way.
Beer is proof that God loves us and wants us to be happy.
Is R&D, marketing, distribution, and profit.
Big deal.
Why is this news again??
I assume the rest of the cost is R&D, software dev costs, and a little profit. Sounds about right for any company that doesn't want to go under.
-- John
It's not like Amazon somehow magically doesn't have any overhead, shipping or design costs for the Kindle. They also have inventory costs, returned item costs and all the other gunk associated with manufacturing and selling an item.
Having merely a 50% of the cost (not including IP) for a still pioneering device like this seems totally reasonable.
If you liked this thought maybe you would find my blog nice too:
Is it a surprise to any one that the manufacturing costs are not as much as retail? The article mentions cost to build, ie materials alone, is $185.49. I did not see mention of SW development, so to think that the rest is profit is just silly.
This. Just. In. There's a markup on retail goods! Also, the sky is generally blue and you need oxygen to live.
You are using English. Please learn the difference between loose and lose; they're, there, and their; your and you're.
Iphone has a higher markup percentage: http://www.crunchgear.com/2008/06/19/apple-only-spends-100-to-build-iphone-3g/
For a lot of retail electronics, 10% of retail price is about the price of the raw parts. One half of the retail prices seems like pretty thin margins.
I was assuming that the kindle is much like a polaroid camera, or inkjet printer where the cost of the hardware is subsidized or sold at effectively no profit, and all the money is made in the consumables (the books).
Sheldon
Why, you could do all the electronics, circuit board layout, PCB manufacturing, case manufacturing, and software/UI all by yourself, make a home-made Kindle2, and save a bundle! Show those crooks some what-for!
It's not like Amazon somehow magically doesn't have any overhead, shipping or design costs for the Kindle. They also have inventory costs, returned item costs and all the other gunk associated with manufacturing and selling an item.
Having merely a 50% of the cost (not including IP) for a still pioneering device like this seems totally reasonable.
Lets not also forget that Amazon pays not only for the bandwidth to deliver all that content, but also pays for the Wireless data service for EVERY unit out there, perpetually.
they are selling it at a loss. A device like this is usually sold as a loss leader as they intend to make up the lost revenue in the sale of the consumables(in this case the ebooks).
"The stupid neither forgive nor forget; the naive forgive and forget; the wise forgive but do not forget." -Thomas Szasz
I took the point to be that manufacturing costs of 50% of retail are fairly high. I suppose that when you are looking at a razor/razor blade marketing model that works out, but it seems quite a bit higher than other electronic gadgets.
Some mornings it's hardly worth chewing through the restraints to get out of bed.
Where do they advertise to potential consumers?
Who are their customers?
By all appearances, they don't distribute it to other retailers. Most wouldn't carry it anyway.
Since Amazon is the only one carrying it, how does anyone know how many are sold?
I think the "news" actually is that they are trying to make a tiny bit of profit on a sale. Xboxes and the like are rumored to be break-even with profits coming from game titles sold.
http://www.maxineudall.com/2010/02/should-economists-be-sued-for-malpractice.html
"... manufacturing cost is almost half as much as its retail price."
Wow, they're actually selling it pretty cheap then.
"Most people, I think, don't even know what a rootkit is, so why should they care about it?"
There's clearly a lot more to the cost of a product than the raw materials. Look at, oh, any video game or application software.
What about costs that aren't inherent, such as defective units that have to be replaced for free, shipping costs on their end, R and D costs, that get transferred into cost, plus the fact that they have no real competitors to have a price war with. This isn't even including workers that will handle any of the various processes that the kindle touches from inception to shipping it out to consumers.
The musings of just another geek and his junk.
OK, so the components cost X and the total, assembled, transported to user, advertised, with retail markup version costs twice X. Seems totally normal to me. It's not like clothing, where the cost after complete assembly is 1/10th the cost at retail sale.
excitingthingstodo.blogspot.com
you are getting a lifetime wireless connectivity with Sprint. I don't see this factored into their material cost. amazon (and analysts) have often stated that the cost of connectivity is overlooked when people complain about the Kindle being pricey.
My sig has been answered.
Link to the actual article
Don't forget that CDMA network is not free. So, add to price of components one or two years of pre-paid data access. Which is probably cheap, but not free.
Hyperom.com
Typical markup from manufacturer to retailer is 100%. From retailer to consumer is another 100-400%. At least this is true in the hi-fi stereo arena :)
Rule 141:
Only fools pay retail.
Rule 142:
Only fools sell wholesale.
RES PUBLICA NON DOMINETUR
when my friend worked for one of the major rental places they sold for over 300% cost and rented for far much more. In my industry we are easily double cost to our resellers whose prices are 150 to 250%. People always underestimate the true costs of running a business. For some reason too many think some things are just free. However it is the business behind the items that set much of the prices. All that time leading up to launch is accounted for as well as maintaining the business and aiming for other hopefully successful launches.
Now in truly super volume sales, usually renewable, the costs are far tighter but its volume they are pushing.
* Winners compare their achievements to their goals, losers compare theirs to that of others.
This reminds me of a story from a WSJ article from 1974, about the nationalization of plants in Chile, quote in Ayn Rand's Philosophy: Who Needs It:
Among them was Dow Chemical Company, which owned a plastics plant in Chile. Bob G. Caldwell, Dow's director of operations for South America, came with a technical team to inspect the remains of their plant. "'What we found was unbelievable to us,' he recalls, 'The plant was still operable, but in another six months we wouldn't have had a plant at all. They never checked anything.' ....Worse yet, the highly inflammable chemicals handled at the plant were in imminent danger of blowing up. 'Safety went to pot,' Mr. Caldwell says. 'The fire-sprinkler system was disconnected and the valves taken away for some other use outside. Then they were smoking in the most dangerous areas. They told us, "You didn't have any fires while you were here before, so it must not be as dangerous as you said."'"
This is usually the way of things. Wanna hazard a guess as to how much food costs at your favorite restaurant? I can guarantee your $12 entree didn't cost even half that much for them at the wholesaler. But the gross on that ain't anywhere near the net. If you want to talk about a contemptible outrage, you're talking about BS like components getting marked up 4x at the big box retailers. Yeah, you get the printer for cost and the $2 data cable for $20.
Kwisatz Haderach
Sell the spice to CHOAM
This Mahdi took Shaddam's Throne
Seriously, why does this company keep getting its name into headlines? Who gives a shit what they feel a bunch of components might cost? Come on, shills. This is a do-nothing company that pisses its pants for publicity, and places like the Mac rumors sites and Slashdot lap it up and parrot their squawkings.
It requires no more than a grade-school education to understand that the price to design, manufature, market, support and service a product is greater than the sum of the wholesale cost of its physical components.
Enough.
Take this stupid company with their silly name out back, shoot it, and don't mention it again.
myselfmusic
You would think like the game console model, you would cheaply sell the razor, knowing you were going to make your money on the sale of razor blades.
Based on their numbers and this model, Kindle should be selling for $100 or less. I can't believe they are selling it for 100% markup. I guess suckers are born twice a minute on Kindle day.
Alert, trendy techflash with marginal utility and lots of fashion statement has excessive mark-up because the makers know tonnes of punters with more cash than will fork over. Stuff that matters... right
Okay, so you have the raw material costs. What about:
* Maintenance (patches, upgrades, etc.)
* salaries - assembly, support, marketing, sales, quality assurance, and so forth
* Surplus for future R&D
* Surplus for warranty service
* Patent royalties (software patents are evil)
* affiliates' tiny slice of the pie
The Christian Right is Neither (Christian nor right). See: Matthew 23, Matthew 25, Ezekiel 16:48-50
Welcome to R&D-Ain't-Free-Istan, where R&D ain't free and companies need to recup their costs. Wait a while, the price will drop.
Or to use an older metaphor, the razor is cheap, but the blades, aaah, the blades...
Amazon is clearly trying to sell the kindle for breakeven or lose-a-little and then more than make up any losses with ancillary sales of "kindle edition" ebooks. FYI, this strategy also seems to have worked pretty well for an obscure company, but I forget the name. It was Pear or Orange, or some kind of fruit, anyway.
Suppliers sell products for as much as they can get. Even if the cost to bring the product to market is less than 0.01% (drug cartels), or more than 100% (sell stock at a loss). For whatever reason you may think justifies actual markup, the real reason is that they *can* charge that much.
The third frame of that comic should read ~on't Pani~
but no retail sales. ideally at every level of the distribution chain, you would like to get at least 50% to be able to maintain and grow the business.
if you're not keeping your margin, you are cutting either the future out, or starving the present.
so the Kindle is good ROI and that's why Amazon likes it and is lining up all the product they can to read with it.
if you sell a $30,000 product for $5000 less than the cost of making it, you are GM. this is not supposed to be a good thing.
if this is supposed to be a new economy, how come they still want my old fashioned money?
you didnt account for the other costs, legal, advertising, dev, etc. but even without these costs I would have to say so what? its a f'king free market u dont like it go move to china biatch
It's a loss-leader. They sell it for a minimal (or zero) profit (don't forget manufacturing, R&D, support, etc.) and make money on the books they sell for it. They probably also make money on the publicity, when people realize how trendy Amazon are and buy even more books.
There is an element of "halo product" about Kindle as well. It generates interest and hype far beyond what just selling a little box with a screen will create.
Neither of these are new concepts.
...laura
How much do they pay to license the digital restrictions management features? Those DRM-pushers all have a hidden agenda, and I'm sure they don't work for free.
Some of the remaining price certainly has to go to pay for the Whispernet connection. Remember that there is a significant amount of free stuff you can d/l to your Kindle.
"It's the height of ridiculousness to say for those 9 lines you get hundreds of millions."
This is not a new business model. Gillette pretty much wrote the book on the model - sell the razor at cost, and reap the profits in the blades forever after. If you buy a Kindle, guess where you are going to purchase your content? It sure isn't going to be B&N or Borders!
Sometimes, real fast is almost as good as real-time.
iSuppli's ENTIRE mandate is to dissect and catalog the COMPONENT PARTS VALUE of a completed product; nowhere in their breakdown do they assess development cost, or it's value as a product, or the "worthiness" of that relative value intrinsic in its parts against the purchase cost of the product.
They get paid by people who buy their breakdowns for business purposes; whether it be to figure a way to make the product less expensively, or to get an idea how much it might cost to manufacture a similar product, or just for plain press-related intent.
In truth, I'm surprised to see that it costs that much on a parts-only basis; typically tech products range in the 5%-25% range of cost to price ratio depending on the product's intended market; spending half the sale price on manufacturing such a product generally indicates you're getting a LOT of technology for your dollar.
Of course in this case much of that tech revolves around making it easy for you to spend a lot MORE money on books that have a fixed one-time production cost; but hey - that's Amazon's business model. I simply cannot make myself pay HARDCOVER price for an e-Version of a book that has been released on paperback for over a year; there's a reason they still have competition.
Don't be surprised when the geeks start hacking them; I'm sure someone is already eyeing that all day battery life and built-in Wireless Connection on someone else's account with interest...
mnem *~~~Left blinker guy on the Information Superhighway~~~*
Well here comes the $$ factor... Nearly 50% profit! Gee seems a bit greedy to me, and that's without the service access fees. I wonder, does this come with fries, or maybe a few free book choices at least? >:) Yes we can! >:) Maybe their pricing guru's were hired from recently laid off Wall Street traders/execs explains this whopping rip off... Or maybe the price reflects the Amazon executive bonus program? Whichever no sale here. I am not that big of a sucker...
Spokesman for INEGroup LLA. - (Over 284k members/stakeholders strong!) "Obedience of the law is the greatest freedom" -
Its price might be forgivable if it weren't DRM'd up the wazoo, wasn't tied to a single provider and could display common non-DRM'd book formats. But it doesn't. Amazon are trying to have their cake and eat it too. The Sony Reader perfect either but even that's cheaper than a Kindle and has fairly reasonable format support too.
How much did they invest in R&D?
Infrastructure setup?
How much does it cost them to pay everyone involved in the process of producing one?
You can say how much each part costs but all these other factors can't be determined by anyone that is not involved in the process. The production costs of any given product is NOT equal to the summed value of the parts. There are a lot of other involved costs a simple dissection wont reveal.
Next story.
Manufacturing costs, including parts and materials, direct labor, indirect labor, plant/equipment depreciation, and energy are ALWAYS approximately half of the retail cost, on average. The most common model estimates it to be 40% of the retail price. The other half comes from Engineering costs (15%), R&D (5%), Administration, Sales and Marketing (25%) and an assumed built-in profit margin of 15%. Of course, this varies by industry (die-casting has a razor thin profit margin, only about 2%).
The tear-down talks about the wireless data module from Novatel Wireless costing $39.50. However, I didn't see it mentioning anywhere the cost Amazon.com has to pay Sprint in order to let each device have free wireless. I doubt Sprint is offering the service for free.