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Kindle 2 Tear-Down Reveals Price of Components

Posted by timothy on from the venturing-to-gain dept.

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."

21 of 169 comments (clear)

  1. And you are surprised? by arizwebfoot · · Score: 5, Insightful

    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.
    1. Re:And you are surprised? by ArcherB · · Score: 3, Insightful

      Well, in fairness, Amazon could sell the units at a loss and make up the difference on digital book sales much like the console manufacturers do.

      But, I agree with you. If these units are selling, why lower the cost?

      --
      There is no "I disagree" mod for a reason. Flamebait, Troll, and Overrated are not substitutes.
    2. Re:And you are surprised? by Captain+Splendid · · Score: 4, Insightful

      It's the Retail way.

      Fixed that for you.

      --
      Linux, you magnificent bastard, I read the fucking manual!
    3. Re:And you are surprised? by tixxit · · Score: 4, Insightful

      But, I agree with you. If these units are selling, why lower the cost?

      Valve had a 3000% increase in sales of Left 4 Dead by cutting the price in half. Why lower the cost if they are selling? So you can sell even more!

    4. Re:And you are surprised? by maxume · · Score: 5, Insightful

      If you are selling your entire production run of a physical good, cutting the price in half just means that you take in half the revenue.

      --
      Nerd rage is the funniest rage.
    5. Re:And you are surprised? by Anonymous Coward · · Score: 1, Insightful

      Software is a non-rivaled good - it's not possible to "buy the last one". L4D is distributed primarily via Steam, so it's non-rivaled. The kindle is a physical object... it's a rivaled good.

      Your comparison fails.

    6. Re:And you are surprised? by Shadow+of+Eternity · · Score: 2, Insightful

      Wait, you mean people try to sell physical products for more than it costs to make them so they can profit off of the sale?

      What a novel concept!

      --
      A bullet may have your name on it but splash damage is addressed "To whom it may concern."
    7. Re:And you are surprised? by tixxit · · Score: 2, Insightful

      True. On the other hand, increased demand gives them more reason to up the production rate. The Kindle is also very expensive for what it DOES (not what it is). An e-reader really should be significantly cheaper then, say, a Netbook.

    8. Re:And you are surprised? by mysidia · · Score: 2, Insightful

      But it means you can increase the size of your production run and make even more, potentially.

      Esp. after your customers get a hold of the device and start buying other products from you to use on the device, and you have an exponential ram up in revenue.

      You know.. like give away the razor, sell the blades.

      It's short sighted to set the price of entry as high as possible, when it reduces the size of continuous recurring revenue, that occurs when customers buy stuff to use on their Kindle, which at a bare minimum, they will do a little, to justify to themselves the cost of the device.

      Over the years as they use the device, all those book sales are pure profit, and can far exceed the value of the device...

      And none of that revenue would exist if they didn't buy the device because they thought it was too expensive, and instead got an iPod mini in order to listen to audio books.

  2. And the other half... by rodrigoandrade · · Score: 5, Insightful

    Is R&D, marketing, distribution, and profit.

    Big deal.

    Why is this news again??

    1. Re:And the other half... by Anonymous Coward · · Score: 4, Insightful

      Also remember that each Kindle has an unlimited cell modem plan built in. Those aren't cheap.

    2. Re:And the other half... by morgan_greywolf · · Score: 2, Insightful

      Agreed: all you people out there scoffing should go out and take a couple of post-secondary business finance classes. Typically, with any widget in the most generic business model, the cost of goods and services (COGS) is roughly 50% of the final price, +/- a few points. You figure 40%-45% for overhead, which consists of indirect costs such as R&D, distribution, administration, marketing, legal, etc., and the rest is profit.

      Producing a product isn't free. Who knew?

      --
      My blog
    3. Re:And the other half... by rm999 · · Score: 4, Insightful

      Every time there is a Slashdot article about a tear down with estimate hardware costs, tons of people point out that x% is an appropriate cost, etc. No one is saying otherwise; we can safely assume that Amazon understands the supply/demand curves, has researched the market, and plans on recouping its costs plus some profit - in other words, has priced the Kindle as optimally as it can. But this doesn't mean the tear-down exercise was pointless.

      In my opinion, there is plenty of interesting information encoded in what the hardware costs. For one thing, it makes estimating marginal cost much easier, which is useful from a business perspective (if you can estimate manufacturing costs and sales, you can get a good idea of Amazon's revenue and costs - this is important if you are interested in investing in AMZN. Another interesting aspect is the relative cost of individual components. The high relative cost of the screen makes it clear that Amazon greatly values that aspect of the Kindle. We can expect to see further innovation in e-book screens, as competition will pay attention to this. Consumers should also be interested in information about Amazon's costs. If/when competition ramps up, I would expect prices to fall because of their healthy profit margin. And personally, as an electronics geek, I'm fascinated in how these types of devices are put together.

  3. How is this news? by stewbee · · Score: 5, Insightful

    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.

  4. Half seems like a lot by stokessd · · Score: 4, Insightful

    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

  5. So... by Xerolooper · · Score: 3, Insightful

    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
  6. Even pawn shops aren't so selfless by Aphoxema · · Score: 3, Insightful

    "... 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?"
  7. Really.. by Shivetya · · Score: 2, Insightful

    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.
  8. Re:well that's me gobsmacked by ScentCone · · Score: 2, Insightful

    excessive mark-up

    You should try designing, manufacturing, marketing, selling to individuals through a retail web presence, supporting, and perpetually providing the bandwidth for something sometime, and then rethink your term "excessive."

    --
    Don't disappoint your bird dog. Go to the range.
  9. Re:Who cares one crap about iSuppli? by MarkLR · · Score: 3, Insightful

    It's somewhat useful in that you can say "suppose the screen was 1/2 the current price?" and get an estimate on what that could do to the retail price of the whole unit.

    It also tells people don't expect an $100 or even $200 unit any without a change in the pricing model.

  10. Re:Apparently... by Xtifr · · Score: 2, Insightful

    I could be wrong, but I don't think the US has clapped all of its workers in physical chains and forced them to work for no wages for their decadent overlords, so the US isn't a capitalist country in the sense that ol' Joe Stalin was using the word.