Amazon To Lose $10 Per Kindle Fire

no wonder they're buying palm by SanguineTeddy · 2011-10-01 04:52 · Score: 2

they really need to lock down those tablets if they want to make money off them

Re:no wonder they're buying palm by Anonymous Coward · 2011-10-01 05:14 · Score: 1

If this price estimate is mostly accurate, the Amazon will have a strong incentive to prevent loading of Android applications from sources other than the Amazon App Store. That would be a downer. A small and light $200 tablet that can be repurposed for anything you can write in Java (or whatever using the NDK) is an amazing thing to have on the market. (Honestly, my favorite Android feature is the checkbox that allows loading apps from "untrusted" sources. Most everything else is inferior to iOS, except notifications and home screen customization.)
Re:no wonder they're buying palm by NoNonAlphaCharsHere · 2011-10-01 05:34 · Score: 1

If you want to do that (at that price), just buy a NookColor and be done with it. At least BN isn't being obstructionist about it the way Amazon will be.
Re:no wonder they're buying palm by fuzzyfuzzyfungus · 2011-10-01 05:49 · Score: 4, Interesting

It will be interesting, once these units get into hacker hands, to see whether that strong incentive (which definitely exists, for the reasons you state), is pursued by technological means, or whether they'll skip the cat-and-mouse with the hypothetical 'fire dev team' and work on the assumption that the pool of users who want intuitive point-and-poke access to Amazon sold stuff is much larger than the pool of tablet hackers and ignore the problem...

Given that a fair number of nook colors have already been sold to the tablet tinkering crowd, and the HP touches during the blowout, and some of the Viewsonic and other cheap-but-not-bottom-of-barrel stuff, have all been out for a while, it won't necessarily be the case that the techie crowd will be all that dangerous in terms of numbers(especially if they do want to sideload some stuff; but also end up buying Amazon MP3s, kindle books, etc.)

It would certainly be no surprise to see some sort of lockdown; but it also might prove to not be worth the effort.
Re:no wonder they're buying palm by symbolset · 2011-10-01 05:53 · Score: 2

They're not even trying to keep them from being flashed. It seems they know better than to waste time on that.

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Help stamp out iliturcy.
Re:no wonder they're buying palm by hairyfeet · 2011-10-01 06:11 · Score: 0

That is why I never understood wasting resources dealing with the hackers. As a percentage of the population they are....what? Maybe 6%? All you have to do is place a "This could destroy your device and void your warranty ZOMG!" screen and you've just made sure a good 85%+ of the population will be too spooked to try it.
So while I support having more goodies to play with I honestly don't get the whole cat and mouse with the hackers bit. What is the point? if they were trying to hack the network or fill it with malware? yes i could see it. but the vast majority simply aren't gonna bother as long as you aren't bumraping them on app prices and Amazon has always been about low prices so I doubt that would be a problem. As long as they have Angry Birds cheap I doubt they'll even see 5% hack the things, most just won't bother, so any resources wasted besides the "ZOMG!" screen is just stupid.

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Re:no wonder they're buying palm by fuzzyfuzzyfungus · 2011-10-01 06:35 · Score: 1

I can only really think of two possibilities that might motivate something besides the 'just make it non-obvious and ignore the geeks' strategy:

1. If somebody were to produce a dead-easy piracy tool, like Napster in the good old days, Click->plug in kindle->select applications/books/etc you want->P2P download, root, install; that would probably make Amazon a sad panda. However, that seems comparatively unlikely in today's legal climate, and considering the 'rough-but-servicable, if you don't mind forum crawling and RTFMing' state of the 3rd-party scene for the utterly unlocked Nook Color.

2. If Amazon is actually losing money on these things, and some 3rd party starts buying them by the truckload, flashing cyanogenmod, and selling them as the best $250 tablet available in some other market. That one, though, seems unlikely because Amazon controls the distribution channel, and shouldn't have a hard time making it inconvenient enough to not be worth trying to obtain the things by the palletload.

Outside of those, though, the toothiest lockdown that would seem to make any economic sense would be some sort of "Well, the SoC vendor will throw in a bootloader that verifies the crypto signature of the firmware before loading at no additional charge, so why not?" more or less apathetic activation of a lockdown feature just because it is available.
Re:no wonder they're buying palm by Canazza · 2011-10-01 06:44 · Score: 1

this is the way it's worked in the Games Console market for decades. Sell the console cheap, make money off licensed games. No different here.

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It pays to be obvious, especially if you have a reputation for being subtle.
Re:no wonder they're buying palm by SomePgmr · 2011-10-01 07:35 · Score: 2

2. If Amazon is actually losing money on these things...
I think this is an important point in itself... it seems like there could definitely be a $10 margin for error on an outside, tear-down estimate. If so, it's entirely possible they're just selling them at cost. Then everything they sell through the device is gravy and a small percentage of device hacks doesn't really hurt them.

Amazon hasn't been particularly hacker-friendly on the regular kindle front, but I suspect that had much to do with their ad-subsidized models being in the pipe. This device could go either way... we'll have to wait and see.
Re:no wonder they're buying palm by reub2000 · 2011-10-01 08:06 · Score: 2

Except, that it hasn't always worked out in the video game industry. After spending a significant amount of money on hardware, people aren't exactly enthusiastic about spending a lot more on content. With a lot of free content from places like youtube, project guttenberg, and even amazon itself, they are taking a huge gamble with this tablet.
Re:no wonder they're buying palm by shutdown+-p+now · 2011-10-01 08:06 · Score: 1

NookColor is $50 more expensive for hardware that's significantly slower.
Re:no wonder they're buying palm by shutdown+-p+now · 2011-10-01 08:08 · Score: 1

Do you have any references for this information? I mean, it's only starting shipping in over a month, how does anyone know what kind of security is there?
If it's coming from one of those guys who did a preview, I wouldn't trust it that much - they were likely given pre-production units, and this is exactly the area where one such is likely to be different from the final version.
Re:no wonder they're buying palm by Alex+Belits · 2011-10-01 08:09 · Score: 3, Interesting

Amazon is in a slightly better position than other companies that produce devices at loss.
A company that sells game console, cable box or phone to the consumer at loss intends to make profit on LICENSING access to things over it -- someone has to pay them to sell content to consumers (games) or consumers have to pay for access to something (TV, movies, wireless phone network). Now, rooted device allows to bypass those things -- everyone can write games, or switch to providers that have no relationship with manufacturers. The device is no longer a gatekeeper, so revenue is down.
But Amazon doesn't need gatekeepers -- they already sell everything over the Internet, with any computer and plenty of phones already perfectly capable of accessing most of their content. Even Kindle DRM for books can be stripped with a regular computer. Whatever losses Amazon can have due to "piracy", it already does have, so the only thing Amazon cares for is profit on sales. Rooted tablet does not compete with Amazon sales of anything -- it's still useful for buying things from Amazon and reading/watching them in a manner that is more convenient than other forms of purchase. It still makes downloads from Amazon more attractive than buying physical media, thus more purchases and less shipping costs.

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Re:no wonder they're buying palm by ajo_arctus · 2011-10-01 08:24 · Score: 2

I think it's fair to say Amazon have a good idea of what each Kindle customer is worth from their existing Kindle data. I know the tablets reach a slightly different audience, but they will surely know approximately how many customers are going to continue past the free trial period for prime, and also how many customers will buy apps, music, video and ebooks. I'm also assuming they've made the task of buying content for the fire even easier than Apple made it one the iPad.
Re:no wonder they're buying palm by itsenrique · 2011-10-01 08:53 · Score: 2

mod this up, there is lots in the news about it. just put root kindle fire into google news.
Re:no wonder they're buying palm by reub2000 · 2011-10-01 09:03 · Score: 1

I don't think it's an even slightly different audience. I think ebook readers target people like me who carry around a few gadgets already but don't like reading things on an LCD screen. To us the fire is a crappy ebook reader that duplicates the functions of existing gadgets. I think tablets are mainly being bought up people without many gadgets, and who need something that can work with a variety of formats. Half these people might just buy it so they can respond to e-mails while waiting for their coffee in the morning.
Re:no wonder they're buying palm by demonlapin · 2011-10-01 14:00 · Score: 1

Amazon also hasn't been hacker-friendly because lots of Kindles - and all the early ones - included free cellular data access that Amazon had to pay for.
Re:no wonder they're buying palm by ajlitt · 2011-10-01 14:15 · Score: 1

True, it's a little stale, but manufacturer refurbs run between $150 and $160 and are expected to plummet as soon as BN announces their next-gen Nook Color. For that money it's a great deal if only as a web browser and media player.
What will be interesting is if the follow-on is as hacker friendly as this model.
Re:no wonder they're buying palm by SomePgmr · 2011-10-01 16:07 · Score: 1

Good point, hadn't even considered that... a free cell data gateway would be nice. ;)
Re:no wonder they're buying palm by symbolset · 2011-10-06 20:38 · Score: 1

Shutdown, I've got nothing to gain from pushing this idea. I've seen it reported that Amazon accepts it will be rooted and they're OK with that. The rooting community is so rare as to be beneath their notice. They're shooting for tens of millions of units a quarter. Let's be thankful that our odd bit is under their radar and fly low, ok? Free Pride day will come later.

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Help stamp out iliturcy.

More than $10 by Anonymous Coward · 2011-10-01 04:53 · Score: 0

Unless the Kindles just magically appear in the wearhouse and market themselves.

Re:More than $10 by teg · 2011-10-01 05:05 · Score: 1

Unless the Kindles just magically appear in the wearhouse and market themselves.
As well as developed themselves, and are so intuitive and bugfree that no support or maintenance is needed.
Re:More than $10 by icebike · 2011-10-01 06:06 · Score: 2

Look, they could GIVE these things away and still make money on them.
The only connect to Amazon's own market and book store and music store.
95% of them will be used by non-hackers, who will continue to buy from Amazon.
In case you missed it, that's spelled KA-CHING!

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Re:More than $10 by Gamer_2k4 · 2011-10-01 07:31 · Score: 2

Unless the Kindles just magically appear in the wearhouse and market themselves.
This point has no substance. EVERYTHING requires marketing, not just the Kindles. When you hear that Nintendo is selling Wiis at a profit, you don't say, "Well except not, because they're spending millions on marketing!" You wouldn't say that for any product. Why should that enter the equation now?
Re:More than $10 by shutdown+-p+now · 2011-10-01 08:10 · Score: 1

The only connect to Amazon's own market and book store and music store.
In truth, so long as they have a browser, they can connect to other markets as well - just not as conveniently.
Not that Amazon has a problem with that. Heck, I own a 3G Kindle, and I use its built-in web browser to buy and download books from a third-party book store - over Amazon's free 3G Whispernet. Very convenient. ~
Re:More than $10 by Anonymous Coward · 2011-10-01 09:38 · Score: 0

It certainly does enter the discussion when you're making movies. When a movie reaches the cost of its budget at the box office, the topic immediately changes to how big its marketing campaign was, how much it cost, and how it will take to reach that figure.
Re:More than $10 by __aazsst3756 · 2011-10-01 13:39 · Score: 1

And r&d, which is not free. Amazon just happens to own a very powerful ad outlet, and to them a rather inexpensive one... their front page.
Re:More than $10 by Macgrrl · 2011-10-04 16:31 · Score: 1

That's ok, they'll make it up in volume... oh, wait...

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Sara
Designer, Gamer, Macgrrl in an XP World

Well if an anlyst says so it must be true by blahbooboo · 2011-10-01 04:55 · Score: 5, Insightful

Gosh, these analysts get such huge salaries and most of the time they are wrong. What a great job!

Re:Well if an anlyst says so it must be true by Xacid · 2011-10-01 05:03 · Score: 5, Insightful

I find it hard to believe an estimation like this could even consider a $10 dollar difference not within margin of error. Pretty much non-news here.
Re:Well if an anlyst says so it must be true by CastrTroy · 2011-10-01 05:10 · Score: 4, Insightful

I agree. The only one who knows how much Amazon pays for each individual part is Amazon. These analysts have no idea what kind of deals Amazon has made with their suppliers. When you are dealing in the millions of units, there is quite a bit of negotiating room. Maybe the people who produce the parts are the ones taking a loss (initially) because they figure they can make more as production ramps up, and they would rather not lose the contract entirely. Analysts can make all the guesses they want as to the cost of these things. But something tells me they have no idea what they are talking about. How come the HP Tablet cost $300+ to make, but you can get a netbook with similar bill of materials for $179 retail?

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Anthropic principle: We see the universe the way it is because if it were different we would not be here to see it.
Re:Well if an anlyst says so it must be true by NoNonAlphaCharsHere · 2011-10-01 05:19 · Score: 1

And of course, anyone who's ever been near manufacturing knows that the manufactured cost per unit for the pilot run is the same as it will be after you've refined your processes and established blanket POs with all your vendors. /sarcasm
Re:Well if an anlyst says so it must be true by ScrewMaster · 2011-10-01 05:24 · Score: 1

And of course, anyone who's ever been near manufacturing knows that the manufactured cost per unit for the pilot run is the same as it will be after you've refined your processes and established blanket POs with all your vendors. /sarcasm
True. I think the only BOM here is this estimate.

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The higher the technology, the sharper that two-edged sword.
Re:Well if an anlyst says so it must be true by obarel · 2011-10-01 06:01 · Score: 2

What "margin of error"? The *estimate* is $209.63. Not a penny more, not a penny less. Not "around $210" and not "$200+", but exactly $209.63.
That's either a totally bogus number, or inside information direct from the manufacturer.
Re:Well if an anlyst says so it must be true by tgibbs · 2011-10-01 06:07 · Score: 1

And considering that a loss of $10 per unit could add up to substantial cost to Amazon when multiplied by millions of sales, while cutting the price by $10 will not sell appreciably more units relative to selling them at cost, it would be crazy for Amazon to sell them just $10 below cost.
Re:Well if an anlyst says so it must be true by downhole · 2011-10-01 06:07 · Score: 4, Interesting

I'd bet that even Amazon themselves couldn't produce a meaningful figure for what any particular one costs to make. They're probably buying enough parts from enough suppliers that all of their deals are changing all the time for each particular part. Not to mention the cost of the design process and creating and maintaining the custom software, production line shakeouts, estimated value of future purchases, estimated value of having control over some percent of the market, etc etc. Some department somewhere probably uses lots of Excel formulas and a little black magic to figure out that they'll do all right overall selling them for $199.

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I don't reply to ACs
Re:Well if an anlyst says so it must be true by icebike · 2011-10-01 06:16 · Score: 3, Informative

That's either a totally bogus number, or inside information direct from the manufacturer.
Nah, Neither is my guess.
Fire up your telephone team and start polling parts manufacturers, who are often only too happy to brag about bagging a big order for wifi chip sets, touch screens, memory, processors, etc. Most of these places will even leak pricing info. The content of a tablet is well established these days. Crank in some custom plastic work (with 40 tablets on the market this cost is fairly well known too).
Put it in a spread sheet, Crank in assembly, shipping, divide by number of units, an out pops the Bill of Materials cost.
That's why you get things estimated to the penny.
Maybe that qualifies as BOGUS in your world, but the story clearly states " analyst estimates". I'm not sure the word "bogus" can rationally be applied to an estimate.
But it really doesn't matter. Amazon will make up any loss in the first month of ownership due to sales of apps, music, emagazines, and ebooks.

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Re:Well if an anlyst says so it must be true by AJWM · 2011-10-01 06:18 · Score: 2

Not really. It doesn't take many ebook sales to cover that. Three bestsellers at the $9.99 price point would do it, or ten $2.99 books, or fifteen $0.99 books (they take a bigger slice at that price point -- although I'm ignoring whatever goes to overhead on the sale.)
Anything beyond that is gravy. The $199 is a psychological price point; they'd sell far fewer at $209.

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-- Alastair
Re:Well if an anlyst says so it must be true by Shoe+Puppet · 2011-10-01 06:28 · Score: 1

cutting the price by $10 will not sell appreciably more units relative to selling them at cost,
It's psychological pricing. 210 is in the 200's. $199 looks like barely more than $100.

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Re:Well if an anlyst says so it must be true by the+simurgh · 2011-10-01 06:34 · Score: 1

sony loses more than that on every playstation 3 sold, or so i heard. i have heard the figure but not exactly a papertrail to that figure.
Re:Well if an anlyst says so it must be true by Hognoxious · 2011-10-01 06:51 · Score: 2

But quoting a figure like that (with so many significant figures) implies greater precision than is possible from the input data, even if you do describe it as an estimate.
If you were estimating the height of a person across the room you wouldn't say he was around five feet eleven and fifty-nine sixty-fourths inches, would you?

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Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Re:Well if an anlyst says so it must be true by fferreres · 2011-10-01 07:09 · Score: 2

Amazon: Hi, I'd like to enter into a contract to manufacture 10 million parts.
Manufacturer: sure, let me look at my price list. It's going to cost you $10 per part.
Amazon: I am getting a BETTER pricing? I think I am going to sell 15 million units in 18 months
Manufacturer: no, because that would prevent interesting posts in slashdot. By the way, we leak all this info so that wannabe estimators can achieve 100% in their estimates. Sorry Amazon.
Amazon: Ok, no worries.
That's probably not how it works. Amazon estimates the price across the device lifecycle (1 year at least and prices are constantly moving). They are very good at bargaining prices with the marketplace. They will sell more tablets than most other vendors (except for iPads) combined in the next couple of years. They are getting quotes now, as opposed to basing their pricing on unreliable, leaked info from tier 2 buyers (only Apple is a tier 1 buyer). For some components, the parts may be similar to computers, but for many, it wont.
So unless the person doing the estimates knows exactly the bargaining power of Amazon, how the deals are structured (does Amazon provide capital, advance cash, pricing terms), what are the counterparts (maybe a company is looking for volume that can drive up efficiencies in some areas where other have an edge so this volume becomes strategic),what are the margins for parts supplied, how is the cost of the supplier's of the manufacturer likely to evolve in a possible down economy, etc. then they will likely be off by +/- some very gentle % figure.
It's likely that Amazon will protect this market so vigorously (against Apple which threatened them with Book seller collusion - there's a trial for that, and their weight on the digital music/video market), against B&N (which is of much lesser concerns), against Google (who also wants to be world's checkout, Books middle-man and universal price finder (Google Shopping), against Netflix (yes, they want to own the Video delivery market, it just makes sense to their EC strategy) then yes, the Fire makes all sense, and buying Palm/WebOS is the next logical move).
I don't think they'll want to lose money, as that wouldn't help their stock. I'd say it's their #1 priority to sell as much as they can, and will bundle dozens of benefits to those buying the devices, as well as those owning their device. And if you root their machine, you lose many benefits. They also hedge the risk of Chrome becoming the the facto standard spy on everyone's doings, that is funding Google up and up.

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unfinished: (adj.)
Re:Well if an anlyst says so it must be true by icebike · 2011-10-01 07:35 · Score: 1

But so what?
When dealing with money people set their spread sheet columns to currency and pay no attention to significant digits or degree of actual precision.
If anything, this lends more weight to my throw numbers into a spread sheet theory.

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Re:Well if an anlyst says so it must be true by Anonymous Coward · 2011-10-01 07:48 · Score: 1

It's bogus because they claim amazon are losing about $10 per unit. They have no idea how much Amazon are paying to make these devices, so everything else is a guess. Picking parts out of catalogs tells you how much you would pay to make something, not how much a 1+m seller would be costed. You can be damn sure Amazon is getting a better price than almost all companies other than behemoths like Apple that pay up front. The component supplies may be the ones taking the hit because they know Amazon are going to sell a fucking ton of these things, and repeat business is for them and not their rivals. We all have no idea, so anyone claiming otherwise is full of shit trying to sell the reports, even if it's only for ad impressions.
Re:Well if an anlyst says so it must be true by cfulmer · 2011-10-01 08:02 · Score: 1

There is a third choice: the estimate is calculated to an unjustified precision. . . . and 63 cents? That sort of precision is destroyed if there's a flu bug running around your factory or if you have an abnormally cold winter or if there's a Hurricane anywhere in the world.
Re:Well if an anlyst says so it must be true by shutdown+-p+now · 2011-10-01 08:16 · Score: 1

But if it's true, it's still quite believable.
First, if any company can expect to compensate such a loss from other sales that are attracted by the device, it's Amazon - they've got their fingers in pretty much everything by now, and with very attractive pricing they're more often than not the first choice for many things (compare prices between iTMS and Amazon MP3 some day...). Given their appstore policies, it's likely that most users would make enough purchases there alone to pay that $10 back to Amazon in the very first day of owning the device!
And there's one other catch in there - everyone thought Amazon will be giving out Prime membership for free with Fire, but it turned out that it's only free for the first month. And it's a classic bait-and-switch thing - you get free access to a lot of stuff on Amazon Video-on-demand, so you might as well start watching it - and if you like what you see, then it's $70/year after that month, please. I suspect a lot of people will buy into that.
Re:Well if an anlyst says so it must be true by CheerfulMacFanboy · 2011-10-01 08:27 · Score: 1

So iSuppli's word is gospel when it says Microsoft Loses $126 Per Unit on XBox 360, but they are mere analysts when they say the Amazon is selling $10 bellow cost.

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Fandroids hate facts.
Re:Well if an anlyst says so it must be true by Eightbitgnosis · 2011-10-01 08:40 · Score: 1

Why you hatin' on analysts? It's not like Amazon's cost accountants are going to release exact figures
Re:Well if an anlyst says so it must be true by Anonymous Coward · 2011-10-01 09:49 · Score: 0

2004 Nokia gave interview to Finnish magazine about cost of manufacturing phones between low end to high end phones.
The numbers what was given striked many a lot.
it was between 2 and 8 euros to manufature a basic 2G cell phone what were sold in stores and operators under 50 euros.
and to build a 600 euros phone it was typically under 8 euros.
every component, line worker payment, broduct box, marketing and design were counted to it. Simply saying, what it toke to deliver phone to stores from components.
a high end 600 phone cost was under 8 euros, it was sold to stores and operators as 80-100 euros, what then sold it with 600 euros and later they could drop price over 70% and still manage to get profit from it after paying marketing, warehouse leesings and workers and store rents etc.
Isupply is so wrong and out of the league that they really dont know a shit what true prices are when a company like Nokia, apple and amazon orders millions of components and sells them in millions.
Nokia what spends 6 billion a year only for R&D does not survive if it gets just 5-10 euros per device when in a year it manufactures 420 million phones and 80% are under 100 euros phones. and still manages to get about 50 billion revenue a year.
the Nokia own documents for shareholders show that it is about over 100 euros per device what they get per device when selling them and that is the price what stores buy them. from it profit is almost 90% what then is spended to everything else, including the 40 cent per share for shareholders.
if ISupply would be correct, no one would be manufacturing any phones and selling to stores under 2000 euros what would sell them to customers over 3000 euros then.
Re:Well if an anlyst says so it must be true by PopeRatzo · 2011-10-01 10:24 · Score: 1

The *estimate* is $209.63.
That number, for a 7" tablet seems awfully high.
Sorry, I just don't believe it's costing Amazon that much to make these things. Maybe it cost them that much to make the first 50, but they're going to sell a LOT of these things.
I love the 7" tablet size. Much more useful for me than 9-10". If the Amazon Fire has an SD slot, I'll buy three (one for me, my wife and daughter). If not, I'll wait a little longer.

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You are welcome on my lawn.
Re:Well if an anlyst says so it must be true by ottothecow · 2011-10-01 11:02 · Score: 1

what does an ipad or a 10" touchpad cost to make?
the screen will be more expensive (unless apple got some crazy deal by monopolizing the production) but the rest of the parts are pretty similar with a few back and forth tradeoffs. The 7" might need some smaller, more expensive, versions of parts to get everything to fit, while the 10" may have extra costs in trying to cut power use on other components so that they can power the larger screen with a reasonable battery life.
It seems like a fair price to me (although a little bit too precise to not be reporting a margin of error on an estimate like this)

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Bottles.
Re:Well if an anlyst says so it must be true by Anonymous Coward · 2011-10-01 12:15 · Score: 0

And anyway the components are probably built by children in India for pennies a day, thus keeping the supply cost well under the price.
Re:Well if an anlyst says so it must be true by icebike · 2011-10-01 13:29 · Score: 1

No it wouldn't be more accurate.
You can not make an overly precise value more accurate by making shaving insignificant digits.
Any estimate centered within the zone of uncertainty is just as valid as any other.
Extra digits do not add accuracy, but removing them does not add accuracy either.

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Re:Well if an anlyst says so it must be true by reub2000 · 2011-10-01 15:02 · Score: 1

Except most of would call that $200. Just like most of us refer to something costing 99c as a dollar.
Anyways, my best guess is that they will make up the $10 when someone buys a $30 case with the kindle.
Re:Well if an anlyst says so it must be true by Fnord666 · 2011-10-01 16:30 · Score: 1

That's either a totally bogus number, or inside information direct from the manufacturer.
Another option would be that it is a number "leaked" to the analyst, along with the cost breakdown, by the Amazon PR department. I'm sure there is a study somewhere that links sales to how close the sale price is to what is perceived to be the unit cost.

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'The tyrant will always find pretext for his tyranny.' - Aesop's Fables
Re:Well if an anlyst says so it must be true by Solandri · 2011-10-01 17:34 · Score: 1

Put it in a spread sheet, Crank in assembly, shipping, divide by number of units, an out pops the Bill of Materials cost.

That's why you get things estimated to the penny.

Maybe that qualifies as BOGUS in your world, but the story clearly states " analyst estimates". I'm not sure the word "bogus" can rationally be applied to an estimate.
Since you don't seem to know about error propagation, let me fill you in. Anyone who has a decent background in math, and certainly any engineer or scientist should know how to propagate error or uncertainty. I wouldn't be surprised if it were taught to accountants too.

Without knowing if uncertainties in the component prices were propagated, the estimated bill of materials could be $209.63 +/- $0.40, or it could be $209.63 +/- $25. The former would make the "loses $10 per sale" statement completely accurate despite being an estimate. The latter would make the statement completely bogus, estimate or not. If as you're implying uncertainty wasn't propagated, that makes the estimate worthless since it could be completely accurate, or completely bogus, or anything in between. That's what people are getting at.
Re:Well if an anlyst says so it must be true by ottothecow · 2011-10-01 17:46 · Score: 1

Prime is so awesome anyways that I can't see why you wouldn't pay for it if you owned a fire.
It could be worth it for the shipping alone (which is where I get the real utility from it) but when you factor in the ever increasing library of streaming content and the fact that it costs less than netflix...add in integration with the Fire and its completely worth $79 a year.
Hell, with netflix splitting into 2, I wouldn't be surprised to see people dropping netflix streaming for nu-netflix dvds and amazon streaming since the dvd service is still the only way to get old/rare/foreign films that aren't streaming but also are not available at your local video store (or often, not even available to buy anywhere) but amazon is set to rapidly improve their streaming library.

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Bottles.
Re:Well if an anlyst says so it must be true by Hognoxious · 2011-10-01 21:31 · Score: 1

Where did I say that?
But actually it could be more accurate[1], if the to-the-penny value is an underestimate.
[1] which is not the same as precise. Learn the difference before you go calling people dumb.

--
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Re:Well if an anlyst says so it must be true by Hognoxious · 2011-10-01 22:50 · Score: 1

Extra digits do not add accuracy, but removing them does not add accuracy either.
Neither does adding them. The difference between quoting a distance as a hundred miles and 99.7843 miles isn't just a few hundred yards. The former is a rough estimate and sounds like one, whereas the latter sounds more accurate, even though it might not be; it could, for example have been derived trignometrically from other measurements that were only accurate to the nearest mile.
If the figure is exact to the penny then why doesn't the headline use a (wrongly) rounded ten rather than $10.63? Because it's a load of bollocks, that's why.

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Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Re:Well if an anlyst says so it must be true by Anonymous Coward · 2011-10-01 23:04 · Score: 0

I'm in complete agreement that no one external to Amazon can do an accurate BOM cost because of confidential pricing agreements. However, this "teardown" is even more nebulous. The funny thing is that the analysts don't even know what parts Amazon is using. They call this a "virtual" teardown. What a joke.
Re:Well if an anlyst says so it must be true by obarel · 2011-10-01 23:20 · Score: 1

Yes, you're probably right. Something along the lines of "if I pay less than production costs then 1. it's a bargain and I should get one and 2. at least Amazon aren't getting rich by selling it (unlike Apple), so it's a fairer deal".
In other words, if word leaked that Amazon are making $100 for each $199 Kindle, people would think they're being pigs. If Amazon are losing $10, that's fair and they'll get it back through content. And so the price is no longer related to the benefit to the consumer (would $199 do something that's worth at least $199 to me), but to the perceived "actual value" as claimed by Amazon. They make this connection for you - if Amazon are paying more than that, then surely it's worth more than that, and I don't have to think hard to decide whether it's a good price *for me*.
Clever - thanks for pointing out this option, because I honestly never thought of that.
Re:Well if an anlyst says so it must be true by Anonymous Coward · 2011-10-01 23:45 · Score: 0

> I'd bet that even Amazon themselves couldn't produce a meaningful figure for what any particular one costs to make
If they can't, they are doing it majorly wrong. After several years in the consumer gadget business I cannot see them doing such an error. They do know the material costs, they do know what the assembly costs. It is quite easy math.
> production line shakeouts
That's why you have a subcontractor, which will absorb such costs and give you a price per unit you can work with.
> Not to mention the cost of the design process and creating and maintaining the custom software
That is besides the point. The news was about margin of the device. With the margin you traditionally pay for the R&D, maintenance, marketing etc.
> estimated value of having control over some percent of the market
That is besides the point, and has no value per se. Just look at most Android manufacturers, and Nokia. They control some percent of the market and are losing money.
> they'll do all right overall selling them for $199.
Of course, but that does not mean the information about margin is meaningless. It just gives more confidence to what many people assumed at launch. Amazon has a different strategy, and price the device differently than anyone. They are subsidizing the hardware and using it to boost their media sales. It sounds like a good approach, for them. Loads of Android manufacturers will continue to see major problems being profitable within the tablet space.
It is quite much like smartphone space a few years back. Apple got the high-end and Android undercut the prices causing huge problems for Nokia. Now it is Apple in the high-end again, but Amazon undercutting the prices causing problems to Android manufacturers.
Re:Well if an anlyst says so it must be true by Richy_T · 2011-10-02 02:05 · Score: 1

What difference does it make what Amazon are paying for the parts? It's either a good price for you or it's not.
Re:Well if an anlyst says so it must be true by UBfusion · 2011-10-02 02:48 · Score: 1

+1 knowledgeable. I guess you are a physicist too?
Precision relates to the number of (significant) figures and has nothing to do with accuracy, which is a measure of "closeness" to the truth (and what we are seeking in those estimates). Unfortunately, in everyday language these two terms are used interchangeably. Analysts know this and exploit everybody (including the /. crowd).
My guess is that the analyst just divided the grand total cost by say 1,000,000 (a batch production run) and then rounded the result to only two decimal places because the third decimal has no meaning in retail pricing.
I should stress however that any estimate, without an estimate of its uncertainty is worthless in Science. Apparently this does not apply to economics.
Re:Well if an anlyst says so it must be true by webheaded · 2011-10-02 06:00 · Score: 1

No kidding. Every time I see this what I really see is, "According to numbers I pulled out of my ass..." because that's all it is worth. No one gives a shit what some analyst thinks. No one. Go do something that matters...of course the ones that spend their time on useless shit like this probably never will.

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"Those who would sacrifice essential liberties for a little temporary safety deserve neither liberty nor safety." - BenF
Re:Well if an anlyst says so it must be true by m50d · 2011-10-02 07:44 · Score: 1

It wouldn't be any more accurate, but it would more honestly convey the level of certainty - saying "$200" as an estimate implicitly means "$150-$250", wheras "$209.63" implies they have it down to +/- $.005, which seems implausible.

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I am trolling
Re:Well if an anlyst says so it must be true by sjames · 2011-10-02 08:52 · Score: 1

The estimate is fine, but claiming it's accurate to the penny is bogus. The more honest answer would be around $210.
That still leaves the main conclusion in tact, this is the razor and blades business model at work.
Re:Well if an anlyst says so it must be true by icebike · 2011-10-02 09:02 · Score: 1

They never made that claim.
You made that up.

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Sig Battery depleted. Reverting to safe mode.
Re:Well if an anlyst says so it must be true by sjames · 2011-10-02 09:29 · Score: 1

They DID make that claim by saying $209.63. Formally that would mean the estimate is expected to be to the penny. They also left off the less formal indicators of significant digits like the words "around", "in the neighborhood of" +/- x, Within X of, etc.
If I tell you something costs $205 and you hand me $205, you'd be surprised if I said "I'm going to need another $10".
Re:Well if an anlyst says so it must be true by icebike · 2011-10-02 09:49 · Score: 1

What part of the word "Estimate" do you find confusing!

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Sig Battery depleted. Reverting to safe mode.
Re:Well if an anlyst says so it must be true by Kittenman · 2011-10-02 12:31 · Score: 1

Reminds me (somehow) of a fault report I closed once. User asked why it worked in Test, not in Prod. Documentation said "unreliable results". I closed it with "Unreliable means it works sometimes - not always". Maybe with "It was so unreliable it was actually right once or twice!".

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"The greatest lesson in life is to know that even fools are right sometimes" - Winston Churchill

A $10 loss is not bad by perpenso · 2011-10-01 04:57 · Score: 1

In a relative sort of perspective a $10 loss is not that bad at product launch. A little cost reduction over time, the sale of a book or two, the project could turn profitable in the not so distant future.

Re:A $10 loss is not bad by Hadlock · 2011-10-01 06:15 · Score: 1

Yup; the break even point (assuming a 50% profit margin on ebooks for amazon) is about four books. I would imagine the average kindle owner buys at least 10 books. This is the same sort of math you see for consoles.

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moox. for a new generation.
Re:A $10 loss is not bad by mgblst · 2011-10-01 13:22 · Score: 0

Yup, and research, marketing, support and other stuff is all $0. It is a magical factory inside amazon that turns out this stuff for free. This is an incredibly stupid discussion here, I guess every bodies brain decided to leave for the weekend.
Re:A $10 loss is not bad by tchdab1 · 2011-10-01 17:02 · Score: 1

Wondering if they've estimated price over the projected life of the product, so that the $10 loss figure includes estimated cost reduction/efficiency improvements over time. Meaning they're losing much more than $10 per unit now, and it's still irrelevant if average users buy several dozen items on it.
Re:A $10 loss is not bad by tchdab1 · 2011-10-01 17:04 · Score: 1

Turning out the first one is definitely not free. Each one after that is almost free.

This isn't a new model by Anonymous Coward · 2011-10-01 04:58 · Score: 0

It's just like gaming consoles. The money is in the subscriptions and games that are sold for the device, not the device itself.

Re:This isn't a new model by icebike · 2011-10-01 06:19 · Score: 1

Exactly.
As long as you come close to cost, you will make up any difference in the first month of end-user ownership.
Books, apps, music, magazines, movies.
Bank!

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Sig Battery depleted. Reverting to safe mode.

Bulk Prices by RoFLKOPTr · 2011-10-01 04:58 · Score: 1

Because it's not as though Amazon is able to get deals on all the parts for buying them in bulk. Yeah, it would cost you $210 if you were to buy all the parts to build your own Kindle Fire, but I don't get why people think it costs Amazon that much.

Re:Bulk Prices by Anonymous Coward · 2011-10-01 05:07 · Score: 0

No, it would cost more like twice as much if you were to build your own Kindle Fire.
But even with very good deals from all suppliers I don't see them going below 200$.
Keep in mind that the Fire uses high quality parts (like an IPS-Panel) that you usually
only find in products that are about a 100$ more expensive in retail.
Re:Bulk Prices by Attila+the+Bun · 2011-10-01 05:31 · Score: 2

Because it's not as though Amazon is able to get deals on all the parts for buying them in bulk.
Y'know I think they might have taken that into account. My local friendly electronics store is selling 7" displays for $265, three times the cost estimate in TFA.
Re:Bulk Prices by RoFLKOPTr · 2011-10-01 05:53 · Score: 1

Because it's not as though Amazon is able to get deals on all the parts for buying them in bulk.
Y'know I think they might have taken that into account. My local friendly electronics store is selling 7" displays for $265, three times the cost estimate in TFA.
For one, the cost estimates are for wholesale prices directly from the manufacturer and they're for just the panel. Is your friendly electronics store selling just an LCD panel with no frame or buttons or anything attached to it except a ribbon cable to plug into a circuit board? For two, even if they take general bulk pricing into account, there's no way for them to know what Amazon is paying. Amazon is a huge company and they've probably got contracts to make several million units. You can get pretty good deals when buying that many of anything.
Re:Bulk Prices by Anne+Thwacks · 2011-10-01 07:28 · Score: 1

I suspect that Amazon's negotiating power is along the lines of "You are going to make me an offer I cant refuse!"
The phrase "There is only one horse in this here town" also comes to mind.
In short: Amazon pays what they want to pay. Not a penny more, nor less.

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Sent from my ASR33 using ASCII
Re:Bulk Prices by Dogtanian · 2011-10-01 19:54 · Score: 1

In short: Amazon pays what they want to pay. Not a penny more, nor less.
Taking that argument to its logical conclusion, I'm sure that Amazon would *want* to pay thruppence ha'penny, but that's not going to happen! :-)

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"Slashdot - News and Chat Sites Deviant". (Click "homepage" link above for details).

Only $10? by Sarten-X · 2011-10-01 04:59 · Score: 4, Insightful

So a company with the bargaining power of Amazon makes a new product, and can't get the price down $10 more? I find that hard to believe. On top of that, the component prices in TFA are estimates. I see no indication of how accurate they are. I also don't see any point to this story.

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You do not have a moral or legal right to do absolutely anything you want.

Re:Only $10? by melted · 2011-10-01 05:17 · Score: 4, Interesting

ISuppli routinely lowballs estimates. Sure, the components cost this much. But how much does it cost to deliver them to the factory, put the devices together, test them, package them, write software for them, run the cloud services, etc, etc. It all costs money, and the fewer devices you sell, the greater fraction some of these costs are. So in a way, costs can't even be estimated until you know the overhead, and until you sell N units. And then Apple will sue their ass, further adding to the cost.
Re:Only $10? by pittaxx · 2011-10-01 05:34 · Score: 0

I see no indication of how accurate they are. I also don't see any point to this story.
I am also blind and don't see anything in general.
Re:Only $10? by alvinrod · 2011-10-01 06:02 · Score: 1

Delivery costs are relatively low in general, especially when the factories that build these devices use components produced in other nearby factories. Even shipping these from Asia to other markets is fairly inexpensive considering the high value/volume that these items possess. Manufacturing costs are generally considered to be about $10 per device in most tablet/phone estimates that I've seen. The software is for the most part already been written since it's using 2.x Android, the rest can probably be covered by some in-house developers who are already on the payroll. The cloud services already exist; perhaps Amazon is just looking to keep their hardware utilized.

The costs certainly aren't something to be discounted, but in many cases they are either incredibly low or already covered in some other manner. Additionally, I feel as though the BoM is on the high side. The Playbook was estimated as costing $200 in terms of materials. The Kindle Fire is essentially a stripped-down version of the Playbook with fewer components of certain types, reducing the cost around $20. Also, Amazon is in a position to order sufficiently many of these devices to further reduce the price.
Re:Only $10? by Anonymous Coward · 2011-10-01 06:23 · Score: 0

The point is simple: a corporate lap dog is doing something for the mother company. They get paid in Amazon coupons. And the hordes of imbecils buy-buy-buy. Just take a look at how many of the answers are ready to estimate in their little stupid greedy minds how much more might Amazon lose. For every moron that thinks Amazon is giving away 10$, Amazon might make 10$. Add whichever incredibly low priced they monkeys might fancy.
And there's more to it: many of the monekys are cheap too. They will buy the ad version. For 30$ upfront discount Amazon might get 25$ from advertising partners. That makes the toy a 5$ investment to have their own banners shown in public.
And there's even more! So far Amazon could tell a lot about someone by looking at their spending habits on the site. Than they also know the "wishes" of the monkey. And what tickling their fancy by logging every show product page. With this device they can store everything that is not encrypted. And most of the net is not encrypted.
So the poor monkey gets to pay cash than make money to Amazon with every click. And all that for a perceived higher value. Yes, humans tend to be that supid, especially well fed primates from the Western hemisfere.
Re:Only $10? by Mr.+Underbridge · 2011-10-01 06:36 · Score: 2

So a company with the bargaining power of Amazon makes a new product, and can't get the price down $10 more?
I don't mean to be rude - but don't you think they were doing that already? That sounds like the Homer Simpson School of Management - "Could you make that cheaper?" Uh, OK...
Whether the estimates are accurate, I couldn't say.
Re:Only $10? by Tim+the+Gecko · 2011-10-01 07:42 · Score: 1

So a company with the bargaining power of Amazon makes a new product, and can't get the price down $10 more?
With twenty pointy-haired bosses saying this, they could get the price to zero!
Re:Only $10? by Anonymous Coward · 2011-10-01 08:37 · Score: 2, Funny

Delivery costs are relatively low in general
Indeed, especially if they use Amazon Prime shipping.
Re:Only $10? by Sarten-X · 2011-10-01 18:15 · Score: 1

I expect they already are bargaining as low as they need to. I just apparently expect a bit more than these analysts. $10 is a small enough margin that Amazon could be getting several components for just slightly less than the analysts expect, and be breaking even. Given that Amazon's main revenue source for the Kindle is selling content, breaking even would be a perfect target - then those jerks who buy it to hack aren't costing the company anything.

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You do not have a moral or legal right to do absolutely anything you want.

Hmmm by Anonymous Coward · 2011-10-01 05:01 · Score: 0

Isn't it anti-competitive behavior to sell your product below cost? I thought Sony got in trouble for doing this with the Playstation...

Re:Hmmm by Anonymous Coward · 2011-10-01 05:06 · Score: 0

Doesn't that only matter if you have sufficient leverage over the market to force competitors to do the same? I don't know anything about the e-book industry but it seems to me that unless the Kindle Fire is far and away the most popular reader it won't much matter.
Re:Hmmm by spire3661 · 2011-10-01 05:18 · Score: 1

Atari blustered about pursuing Playstation 'dumping' charges before the PS1 price was announced and then was never heard from again. They basically said if Sony comes in too low, we'll sue/pay a congresscritter to open an inquiry etc. Nothing ever became of it beyond an idle threat.

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Good-bye
Re:Hmmm by NoNonAlphaCharsHere · 2011-10-01 05:43 · Score: 1

Isn't XBox still being sold at a loss?

Cherry picking by Anonymous Coward · 2011-10-01 05:01 · Score: 0

Not including content sales in the analysis is like saying Auto Trader loses 25 cents on every paper print.

Re:Cherry picking by Anonymous Coward · 2011-10-01 06:17 · Score: 0

Say it, don't spray it brother, Dang!

Cost of software by Anonymous Coward · 2011-10-01 05:04 · Score: 0

So, maybe the hardware is sold at $10 loss.

So what? If the hardware was sold at $10 profit, there are still costs for software development, marketing, etc etc.

These cost far offset a loss or profit of the hardware components, and, as others have noted, the device is only a conduit to sell content, which is where the revenue is made.

Launch fail by Anonymous Coward · 2011-10-01 05:08 · Score: 0

If only they were making them available ANYWHERE.

This whole "US ONLY launch" BS does little for adoption. if they want people to buy the thing and consume their services: they need to release to every one at once.

Once the thing launches, it's a race for competitors to come up with "close enough" versions around the price point to destroy adoption IMHO.

So? This is news? by Ecuador · 2011-10-01 05:10 · Score: 1

Along with R&D and marketing, infrastructure etc overhead, it is losing more than $10 per Kindle Fire sale. And this is news to whom? When you expect a steady stream of income for each device sold, you would be stupid not to subsidize it!
Similar to how many recent video game consoles were sold at a loss when they came out, to ensure a user base.

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Violence is the last refuge of the incompetent. Polar Scope Align for iOS

Re:So? This is news? by Anonymous Coward · 2011-10-01 05:29 · Score: 1

Plus, as tech advances and manufacturing and channel arangements get better, they will hit break even and even get a modest profit per tablet.
Apple's profit margins are like luxury brands like Rolex, Mercedes, or Gucci. amazon may be on to something and may have figured out mass volume at low prices is the only way to compete against a dominator like apple. Also, If it gets more people using android based tablets using amazon services, the better it is for amazon and the other vendors.
Everybody wins but apple. (apple doesn't lose though as the type of people who want to buy a toyota are not the ones who would buy a mercedes)

Amazon's teats by DogDude · 2011-10-01 05:12 · Score: 1

Hey, if it'll get more users sucking on that Amazon teat for all of their purchases, they should be giving them away for free.

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I don't respond to AC's.

So, this is... by Anonymous Coward · 2011-10-01 05:16 · Score: 0, Funny

A Kindle Fire sale?

$10 seems miserly to me by Anonymous Coward · 2011-10-01 05:20 · Score: 0

Back in the 90's when personal mobile phones were a relatively new phenomena they were sold at a £150 loss in the UK, the reasoning being that the network was a fixed cost and that every call was virtually 100% profit over the minimum monthly tarrif.

$10 seems miserly to me, as a Kindle reader, no bookshop has had my business since last December (guess what I had for christmas) and they are expecting video sales as well.

$10 loss/unit is acceptable by Anonymous Coward · 2011-10-01 05:20 · Score: 0

Given that Amazon will sell between 4-5M units, this amounts to a $40-$50M loss. But if you think of it another way, it is about the same as some companies' marketing budgets. Given that Amazon does not do heavy traditional marketing (except Kindle Ads on TV, print, internet) this is an acceptable loss and when trying to establish a beachhead in the tech industry $50M is a pittance compared to potential future profits.

In addition, if the Palm/WebOS purchase goes through, they could gain enough mobile expertise to launch their own smartphone and also sell that for razor thin margins. Note that from a tax perspective, Amazon should start paying California sales taxes if they buy a company where the majority of the employees reside in California.

Amazon To Lose $10 Per Kindle Fire... by Anonymous Coward · 2011-10-01 05:21 · Score: 0

...sold to customers which don't buy any content from Amazon.

There, I fixed it for you.

A news site... by Anonymous Coward · 2011-10-01 05:22 · Score: 0

... that offers news would be great.

That's just one analyst's guess by sribe · 2011-10-01 05:25 · Score: 1

I've seen another one that thinks they're losing $50 each, and another that thinks they're making $50 each (which I really doubt).

Re:That's just one analyst's guess by qlayer2 · 2011-10-01 05:29 · Score: 1

And it really doesn't matter hardware wise- to make the device a reasonable purchase, you have to add Amazon Prime for $79/year, and I'm sure you'll manage to buy a book or two. Hardware selling at a loss to sell software/add-ons is hardly a new concept- If they could really build them for close to cost, I'm surprised they didn't either low the price more to drive buyers towards it or include a year of amazon prime in the price to make it more attractive to buyers.
Re:That's just one analyst's guess by tgibbs · 2011-10-01 05:53 · Score: 1

Yes, this is clearly within error of break-even. Amazon is not going to sell appreciably more phone by taking a $10 loss per phone, so why do it? And since the main goal is not to make money on the hardware, but rather to sell Amazon's other products and contents, selling the tablet essentially at cost makes the most sense.
Re:That's just one analyst's guess by tgibbs · 2011-10-01 06:00 · Score: 1

oops...meant "tablets" not "phone"

Analysts by Anonymous Coward · 2011-10-01 05:29 · Score: 0

estimates a lot, their beancounter logic add's up (no pun intended), does not mean it's correct. Even *if* the hardware-components all by themself cost more than Amazon sell's them, it does not mean Amazon actually pay's more, and it does not mean they loose money on the long run...

Buying one makes Amazon *lose* money? by SteveFoerster · 2011-10-01 05:35 · Score: 2

Now that's a good reason to buy one!

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Space game using normal deck of cards: http://BattleCards.org

Re:Buying one makes Amazon *lose* money? by Anonymous Coward · 2011-10-01 06:13 · Score: 0

They are already down $210 per kindle, buying one will bring them up by $200
Re:Buying one makes Amazon *lose* money? by Anonymous Coward · 2011-10-01 06:41 · Score: 0

Now that's a good reason to buy one!
Why do you want Amazon to lose money? Because it's a "corporation" and therefore "evil?" Amazon has treated me, a mere low-level customer, with excellent customer support, 100% no-questions-asked returns, and their Prime program is fantastic. Would you rather Amazon go out of business and the Wal-Marts of the work take over?
Re:Buying one makes Amazon *lose* money? by Gaygirlie · 2011-10-01 08:23 · Score: 1

I don't understand the hate. Amazon is one of tthe more customer-friendly companies around, and they actually care about their products. Similarly they aren't locking the Fire down, instead they've said they're not going to do anything special to prevent geeks from rooting and hacking around with the devices.
Tbh, I'd wish there was a few more companies like Amazon, not less.
Re:Buying one makes Amazon *lose* money? by SteveFoerster · 2011-10-01 08:44 · Score: 1

My reasons to dislike them are their silly one-click patent, that they caved to politicians by dumping Wikileaks, and that they treat their workers like crap. I recognize other people may not care about these issues and like them fine, or conversely may dislike them for other reasons.

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Space game using normal deck of cards: http://BattleCards.org

Loss leader pricing strategy by Achoi77 · 2011-10-01 05:44 · Score: 1

I don't see this as being any different as Sony or MS trying to push out their gaming consoles at a loss - just business as usual. Amazon's true advantage over direct hardware manufacturers is that they can afford to risk gambling with loss leaders while direct manufacturers like ASUS and Archos cannot. Sure, they may probably make less profit, but the opportunity to gain marketshare is too great to ignore - which is the point: to get _everybody_ to use amazon's services.

Sure, just for the first few months... by LynnwoodRooster · 2011-10-01 05:48 · Score: 1

At the rate that electronics components drop in price, it'll only be a "loss leader" for a few months at most. After that, it'll be a break even or small profit-maker on its own - regardless of the amount of content consumed.

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stupid business by Anonymous Coward · 2011-10-01 05:57 · Score: 0

It's amazing how companies do this all the time thinking they can somehow make money someday by digging themselves a big hole and losing money on products. Apple has huge profit margins and has no trouble selling. They think their tablet sucks so much that people won't buy it for half the cost of an ipad at $249? Pretty pathetic.

They're Losing Nothing by Anonymous Coward · 2011-10-01 06:00 · Score: 0

At least not from me. It'll be a cold day in hell before I buy a device that sends the title of every book I read and how long I look at each page back to its master.

Amazon makes money on books, not hardware by longhunt · 2011-10-01 06:02 · Score: 1

In business school they call this the Gillette strategy, after the razors. Sell the razors at a loss...make your money back easily on the blades. Nail guns are sold the same way. The companies have been know to pass out free nail guns to construction companies just so they will buy more nails. Even if you buy a gun in a store, they are sold at pretty close to cost. Its a classic strategy. Besides, the more volume they can build, the closer to break-even they can get. By this time next year I bet they will be making a profit.

Re:Amazon makes money on books, not hardware by ThorGod · 2011-10-01 06:45 · Score: 1

The term you're looking for is "loss-leader".

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PS: I don't reply to ACs.
Re:Amazon makes money on books, not hardware by longhunt · 2011-10-01 08:24 · Score: 1

Hate to be pedantic, but no. Not really. The term loss-leader refers to a different strategy where a retailer puts an item on sale to increase traffic to their store. That is clearly not the main motivation in this case. I'm a business grad student...I've had to answer more than a few essay questions on these things.
Re:Amazon makes money on books, not hardware by dredwerker · 2011-10-01 09:22 · Score: 2

In business school they call this the Gillette strategy, after the razors. Sell the razors at a loss...make your money back easily on the blades. Nail guns are sold the same way. The companies have been know to pass out free nail guns to construction companies just so they will buy more nails. Even if you buy a gun in a store, they are sold at pretty close to cost. Its a classic strategy. Besides, the more volume they can build, the closer to break-even they can get. By this time next year I bet they will be making a profit.
Except its not a strategy by Gillette: "The usual story about Gillette is that he realized that a disposable razor blade would not only be convenient, but also generate a continuous revenue stream. To foster that stream, he sold razors at an artificially low price to create the market for the blades.[1][3] But in fact Gillette razors were expensive when they were first introduced, and the price only went down after his patents expired: it was his competitors who invented the razors-and-blades model.[4]" http://en.wikipedia.org/wiki/Freebie_marketing

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On a long enough timeline. The survival rate for everyone drops to zero. Chuck Palahniuk, Fight Club, 1996

An analyst "estimates the cost?" by edibobb · 2011-10-01 06:03 · Score: 1

An analyst's estimate could be much more than $10 to high (or low). Amazon probably knows how much they're making (or not) on each Kindle Fire, but I doubt any outside analyst does. Maybe Amazon gets the parts cheap on Amazon.

Translation by samwichse · 2011-10-01 06:04 · Score: 1

CorporateSpeak (R) translation follows:

The device will be locked down HARD.

Sam

OMG this is a new concept! by TavisJohn · 2011-10-01 06:14 · Score: 1

Content providers have only been doing this for DECADES!
Atari did this back when the 2600 first came out. Sell the console cheap, and require all software developers to pay them for the privilege to make games for their console.

Re:OMG this is a new concept! by Belial6 · 2011-10-01 06:32 · Score: 1

No, when the 2600 came out, Atari made all games in house, and thought they could use the courts to prevent any 3rd party developers from making games for "their" system. Activision was formed from previous Atari employees, and the games they originally made were not endorsed in any way by Atari. In fact, Atari sued them to try to stop them. It was from that incident that the idea of licensing 3rd party software developers arose.
Re:OMG this is a new concept! by Thing+1 · 2011-10-01 08:20 · Score: 1

And, damn did those Activision games have more pixels! That was a good precedent. (I also had the ... Iforgetthename, it was a cartridge twice as large and loaded games from cassette tapes, which were even cooler than the Activision games; there was an Asteroids clone, and a Dragon Stalker or something like that which I recall spending many hours on.)

--
I feel fantastic, and I'm still alive.
Re:OMG this is a new concept! by Belial6 · 2011-10-01 14:39 · Score: 1

The cassettes you are thinking of were "Starpath".
Re:OMG this is a new concept! by Thing+1 · 2011-10-03 10:17 · Score: 1

Thanks! Also found that the game was "Dragon Stomper", but I didn't see the Asteroids clone in wikipedia; perhaps I should dig through the attic at some point, and add it.

--
I feel fantastic, and I'm still alive.

Figure implies accuracy that it cannot have by Anonymous Coward · 2011-10-01 06:18 · Score: 0

The cost figure should not be accepted as Gospel, as implied in the "estimated" value, down to the penny.
Regardless, just imagine it as some nonzero loss amount, which possibly might be mostly eliminated
by the extended warranty income. But eliminated or not, this is not a large amount - I was expecting more
than twice this amount in terms of a loss - around $25.

Not according to Amazon by manekineko2 · 2011-10-01 06:22 · Score: 4, Informative

http://www.pcmag.com/article2/0,2817,2393740,00.asp#fbid=ajRIdnxQUAV

"Amazon isn't doing anything special to prevent techies from "rooting" and rewriting the software on its powerful yet inexpensive new tablet, Jon Jenkins, director of Amazon's Silk browser project said."

the're not going to lose 1 cent by cats-paw · 2011-10-01 06:25 · Score: 5, Interesting

These kind of stories always show up - but no matter how much they think they know about the production they are STILL
underestimating the amount of buying power somebody like Amazon has.

Amazon is probably quoting an _initial_ production run of 10 million units. They are getting excellent pricing.
There is no way they are losing a penny on these things.

--
Absolute statements are never true

Re:the're not going to lose 1 cent by Anonymous Coward · 2011-10-01 08:32 · Score: 0

They could loose a little bit. And make it back up in a couple of book/item sales. Just depends what they want to consider ROI.
For example the ps3 sold until recently at a loss (sony even states this in their quarterly earnings reports). Nintendo and Apple on the other hand use their name to sell at a premium (and not at a loss).
Re:the're not going to lose 1 cent by Eightbitgnosis · 2011-10-01 08:46 · Score: 1

So is that observation based on any actual numbers? Or just things you made up that sound rightish?
Re:the're not going to lose 1 cent by dkf · 2011-10-01 09:24 · Score: 1

They could loose a little bit. And make it back up in a couple of book/item sales. Just depends what they want to consider ROI.
What's more, Amazon have a long history of using ultra-thin margins and making it back on volume. They own several markets completely through that strategy, yet without locking competitors out so that they don't have excessive regulatory trouble. Very very clever. Very dangerous to anyone competing with them. They also have a lot of eCommerce patents, which would make it ultra-hazardous for the likes of Apple to go after closing down distribution of the new Kindles (since the retaliation would likely involve effectively closing down iTunes, which is currently critical to Apple's profitability).

For example the ps3 sold until recently at a loss (sony even states this in their quarterly earnings reports).
But if they're taking the profits on the games through a different route (i.e., doing accounting tricks) then the loss on the device is not important. What's more, they now have a period when they are going to own the console market; the development costs on the PS3 are largely recouped, the competitors are needing to do major product refreshes to catch up, the manufacturing efficiency is high (and costs are low), and the platform is picking up nice licensing fees from all the third-party developers producing software for it. It won't last forever, but it's going to be pretty sweet for a while even allowing for the widespread depression. Which part of the business officially clocks up the profit... that's an accounting matter (and will probably be tuned to minimize tax liabilities) but it's the whole that's winning.

Nintendo and Apple on the other hand use their name to sell at a premium (and not at a loss).
Apple are also good at the business of getting money from a significant fraction of the product use cycle, ensuring that they get their cut from a lot of the things that are done with their devices. However, they have the problem that they've annoyed content providers a lot and have a lot of competition coming at them very fast and hard from many directions. They might also be about to attract significant regulatory attention; being wildly profitable by providing what people want is fine, but doing it by over-sharp business practices is not...
Nintendo are just in the wrong part of the product cycle right now (the Wii had a naturally shorter lifespan than the PS3 because so much of it was less technically advanced) and may have had a few problems with the situation in Japan this year. If they survive (and there's no particular reason to think they won't) expect them to be back with future products. It's just unfortunate for them that the thing they were banking on a bit (3D handhelds) hasn't worked out so well as they'd hoped; human visual systems are tricky. Though to be fair, the big threat to Nintendo is probably Apple (and the various manufacturers grouped around Android) as those are devices that are likely to threaten Nintendo's handheld stranglehold utterly. It'll be interesting to watch what happens from the sidelines.

--
"Little does he know, but there is no 'I' in 'Idiot'!"
Re:the're not going to lose 1 cent by cats-paw · 2011-10-01 17:53 · Score: 1

well of course I can't get the _actual_ numbers because I can't get a serious quote on 10,000,000 LCD panels.
Here's what happens:
get a design done - quote it - ALL THE WAY THROUGH ASSEMBLY.
if it doesn't jive with what they want for retail price vs their desired gross margin either
a hammer on the vendors for better pricing
b start swapping components reducing features
to get to the desired pricing. it's always a combination of a & b.
I stand by my statement. They are not losing a cent. That does NOT mean it will be a hugh profit center for them, but they will not lose money on the sales.
however, if the effort does not pan out, they may lose money on the program in total due to advertising, marketing costs etc...
my guess is they didn't pay for the design - but probably outsourced the design to the final assembly house. that's hard to say.
my guess - it's going to be a suckass product on the first round through. I would expect a lot of problems precisely because they don't have a handle on design like Apple does. Apple should still be worried though - people always choose cheap sh*t over quality product and with Amazon's buy a bunch of cheap sh*t convenience for this thing, I think it could definitely eat into Apple market share.

--
Absolute statements are never true
Re:the're not going to lose 1 cent by kamapuaa · 2011-10-01 18:44 · Score: 1

Another possibility is they know more than a random slashdot commenter making shit up off the top of his head. They surely accounted for such an immediately obvious factor.

--
Slashdot: providing anti-social weirdos a soapbox, since 1997.

What Amazon Has Accomplished is Significant by Anonymous Coward · 2011-10-01 06:51 · Score: 0

What Amazon has accomplished here is significant. Apple said that a 10" WiFi only tablet must cost $499. Amazon has now said that a 7" WiFi only tablet must cost $199. This calls into question of those remaining 3-inches are really worth a 150% $300 premium? I expect that Apple will now have to come out with a competing product that somehow doesn't eat into their high margins on their current devices. As I see it, Amazon just took a bit bite out of the Apple.

Original article here by allanw · 2011-10-01 06:54 · Score: 1

Skip the middleman

http://www.isuppli.com/Teardowns/News/Pages/Amazon-Sells-Kindle-Fire-at-Low-Profit-Margin-to-Promote-Online-Merchandize-Sales.aspx

A lesson to HP... by luis_a_espinal · 2011-10-01 06:57 · Score: 1

... and other tablet manufacturers. Selling at a lost, though always a risk, can be an acceptable maneuver.

Re:A lesson to HP... by Cigarra · 2011-10-01 09:14 · Score: 1

Only if you also control the content market, and can make up for the losses there. That worked for the PS3 and works for the iPad, since Sony and Apple control the content delivery in their platforms.

Do you care to explain how could it have possibly worked for HP?

--
I don't have a sig.
Re:A lesson to HP... by Anonymous Coward · 2011-10-01 16:01 · Score: 0

Right, and the real lesson is: You had better be able to make money back on your ecosystem for a tablet or there's no point to sell one.

10 Bucks? 20 Bucks? Whatever by tgeek · 2011-10-01 07:14 · Score: 1

Easily offset by the sales of Amazon Prime memberships after the free month trial period. Assuming a $10/unit loss it'll only take one new subscriber out of every 8 units sold to recoup the loss. Sure there's costs associated with providing AP but also other benefits to Amazon other than selling more Kindles -- increased sales of other items, selling non-Prime streaming content (the Prime content sure ain't anything to write home about), etc.

So what? by Anonymous Coward · 2011-10-01 07:17 · Score: 0

It's a very old business model: give away the razor and sell the blades. No mystery here.

Even if this is accurate by Anonymous Coward · 2011-10-01 07:33 · Score: 0

They'll make it up on sales of ebooks, your information (ala Silk). No need to cry for them. I 3 amazon

Does it qualify for free shipping? by Anonymous Coward · 2011-10-01 07:39 · Score: 0

Add another $5 to that price tag, because you know it does.

Kill the monopoly by Anonymous Coward · 2011-10-01 08:07 · Score: 0

We must hack these below-cost devices to prove to businesses it's a futile business model! Who's with me?

They'll be under half of the nation's trees by sandytaru · 2011-10-01 08:39 · Score: 1

I point blank asked my husband if he wanted a Kindle Fire for Christmas. $200 is within my price range, whereas a $500 iPad is not. He said "not really" but then suggested we snag one for his mother. The aggressive pricing is going to make these the top seller this year in electronics. For people who are merely content consumers they are perfect. (If you're a content creator, though, it's not enough, which is why I think he was "meh" on the whole idea and is sticking with his laptop.)

--
Occasionally living proof of the Ballmer peak.

Gotta get that market saturation by Eightbitgnosis · 2011-10-01 08:59 · Score: 1

Losing money on a product isn't a bad thing if you've got a long term strategy. By taking that $10 hit they gain much more of the market, and can eventually change their prices once they've claimed more of the market.

Not to mention with Amazon's kindle you will likely end up buying books too. At amazon's cut of 30% per book they only need to sell you, not factoring in costs to run the service, $33.33 worth of ebooks to make up the difference.

Except .. by jon3k · 2011-10-01 09:08 · Score: 1

Let me guess, margin of error of up to +/- 5%.

$10 or $50? by Anonymous Coward · 2011-10-01 09:38 · Score: 0

Would be nice if these guys could agree, this story says they'll lose $10 per fire, another says they'll lose $50 per fire [http://economictimes.indiatimes.com/tech/hardware/sunday-et-amazons-kindle-fire-vs-apples-ipad-how-dramatically-different-the-two-companies-are/articleshow/10198179.cms]. Which is right? Also, why do we care?

Re:$10 or $50? by petermgreen · 2011-10-01 12:36 · Score: 1

Afaict the truth is noone really knows.
As I understand it these figures come from stripping a device down, making a list of all the significant parts (and maybe counting but not fully identifying the less significant ones like resistors and small capacitors), assigning a price to each one and then adding up a total.
The trouble is noone really knows what amazon pay for each part. They have to estimate based on general market prices and their estimates may be higher or lower than what amazon actually pays.

--
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Re:$10 or $50? by Xeranar · 2011-10-01 14:59 · Score: 1

They're often more accurate than you think. Unless Amazon is locking up 10-20 million parts at a time they're probably paying close to market prices for their parts. They're not buying capacity at factories, they're doing production runs. So where Apple has been able to use scale of economics and paying upfront without the cost of interest Amazon is most likely testing the waters and seeing if they can make a big run on these.

Kindle Fire is their sales channel by Anonymous Coward · 2011-10-01 10:27 · Score: 0

It's like mobile phones. They will make money selling their content and products because Kindle Fire is probably designed to make it SUPER easy to buy content and products from Amazon. They don't care if they don't have a high or ANY margin on the device.

one economic incentive by way2trivial · 2011-10-01 11:06 · Score: 1

every time a hacker bricks his unit and cries for replacement/repair under warranty.

damn expensive, not vendors fault.

--
every day http://en.wikipedia.org/wiki/Special:Random

Re:one economic incentive by ajlitt · 2011-10-01 14:21 · Score: 2

The Nook Color is nigh-unbrickable since you can boot from alternate media and completely reformat internal storage, no matter how screwed the image is.
The worst that can happen is that you blow away the partition containing the MAC address, battery calibration, serial number, and the certificate that identifies the device to the BN store. For custom firmware, these aren't all that necessary, and from what I understand the BN stores have a magic SD card that can recover this all from a server based on the printed serial number.
The Fire has a newer OMAP CPU with similar boot capabilities, and although it doesn't have an SD card slot, OMAP3 and 4 can be booted over USB. If Amazon is smart they'll not try to lock that down and avoid a long string of RMAs.

Seems cheap to me... by Polo · 2011-10-01 11:16 · Score: 1

considering each Kindle Fire is a POS/cash register for Amazon.

Cost of production is not a static number by voss · 2011-10-01 12:31 · Score: 1

If the Kindle fire is successful and sells in big numbers the cost of production will likely drop quite a bit.

Amazon's completely willing to sell at a loss by edremy · 2011-10-01 13:49 · Score: 2

Back in the days when the first gen Kindle had just come out, my boss and I met with an Amazon rep to discuss doing an e-textbook trial with them at the school where I work. We ended up not doing it mostly due to cost, but the rep mentioned off the record that even at $400 each they lost money on the first gen Kindle.

It's four years later. I just today got one of the new $79 4th generation e-ink models. My bet is that they are losing money on this device big time- there's no way in hell it cost $79 to make.

Amazon doesn't care. They're selling the razors at a loss. But I just bought two books for my new toy. They won't be the last

Ka-CHING!

--
"Seven Deadly Sins? I thought it was a to-do list!"

$10 over is perfect by bill_mcgonigle · 2011-10-01 15:05 · Score: 1

So a company with the bargaining power of Amazon makes a new product, and can't get the price down $10 more?

$10 over is perfect. In 3 months it'll be break-even, in 6 months it'll be $20 under. They have additional revenue streams and were able to introduce the very best product now instead of waiting until after Christmas.

--
My God, it's Full of Source!
OUTSIDE_IP=$(dig +short my.ip @outsideip.net)

More likely... by Anonymous Coward · 2011-10-01 16:27 · Score: 0

it costs about $25-30 to manufacture. That would put it in the correct price range after the usual markup. This story is most likely more of the marketing lies and FUD tha amazon is famous for.

Lawsuits are sure to come, sadly by rsborg · 2011-10-01 18:23 · Score: 1

And then Apple will sue their ass, further adding to the cost.

You left out Oracle (Amazon is using the Android codebase, which Oracle is suing Google for).
You also didn't mention about Microsoft, who has successfully extracted patent moneys from several Android-using manufacturers.
Finally, there is Google (who now owns Motorola and their 24,000 patents). Amazon basically used and abused Android (in spirit with the license, of course) to fashion their tablet operating system (which they don't even publicly state runs Android in the first place).

No, Apple is the least of Amazon's concerns right now. They are likely the only folks who can compete versus the Apple ecosystem and media juggernaut, but they will need the Palm patent asbestos suit or they will be burning a LOT more than $10/unit on each Fire sold - and it's not just Apple who are willing and capable of doing it.

--
Make sure everyone's vote counts: Verified Voting

It doesn't matter by Shihar · 2011-10-01 20:26 · Score: 1

It doesn't matter if they lose a few bucks on each tablet sold. Amazon REALLY doesn't care. They can happily eat a loss on each tablet because they are not selling tablets. They are selling Amazon content delivery devices. The purpose of an Amazon content delivery device is to get you to buy content. If it takes a net cost of $10 to get one in your hands, they will happily pay. In fact, on the initial run, they will happily pay far more than $10 net dollars to get their Amazon content tube plugged into your face. They will eat a hefty loss just to build the market and work the margins down better.

This is exactly what they did with the Kindle. The first Kindle was subsidized in terms cost. They were happy to do this to build a market. They recouped everything they threw down by selling books, and then made a pile more once they created and dominated the e-book market. Amazon is just turning around and looking to do the same thing with tablets. Step one is to build a credible market and take a loss doing it if they have to. Step two is profit.

1.Sell discounted media consumption device
2.Build market for the new device
3.???
4.Profit

Nah, they could lose way more by bgspence · 2011-10-01 21:36 · Score: 1

I found a MIMO UM-720S Touch Screen USB Powered 7 Inch Swivel LCD Screen Mini Display for $174.99 rather than the $87 quoted in the investigative journalism research article.
http://www.amazon.com/MIMO-UM-720S-Screen-Powered-Display/dp/B002QFP4Z8

So if they get those then they will lose more like $98 per Kindle.

And, I could sell them enclosures for $113, not the $11 they quoted.

Then Amazon could lose $200 per Kindle. Now that's a really big scoop.

Don't they teach GIGO at DeVry? by Hognoxious · 2011-10-01 23:33 · Score: 1

If anything, this lends more weight to my throw numbers into a spread sheet theory.

I don't care if they do it with a Beowulf cluster of Crays operated by the ghost of Alan Turing. The method is, to put it in technical terms, a bag of knackers.

Many years ago I had to fix some bugs in a component manufacturer's billing system. Specifically, it was in the part that includes the price of gold in the calculation. That's just one reason why the component price can vary from one day to another. That means two consecutive units could have different costs, if one got the last of Monday's batch of flux dimorphatrons and the other got the first of Tuesday's.

But more importantly you're incredibly naive if you think they'd disclose commercially sensitive information like that to a random blogtard or any other third party.

Just because a number pops out of a computer doesn't mean you should believe it.

--
Confucius say, "Find worm in apple - bad. Find half a worm - worse."

Page down - see here by Anonymous Coward · 2011-10-02 01:12 · Score: 0

Try here for a reprint http://www.pcmag.com/article2/0,2817,2393947,00.asp#fbid=CtrGC3kJBj8

Might be illegal? by Anonymous Coward · 2011-10-02 04:56 · Score: 0

Don't anti-dumping laws prevent companies selling goods at a loss if the motive is to stifle competition? Also, doesn't the IRS generally require demonstration of profit motive for companies to be able to deduct business expenses?

so you are telling me by Anonymous Coward · 2011-10-02 06:05 · Score: 0

that you spent $210 making a computer worth $125? call me when you reach that price point and i'll buy two

Misleading by Anonymous Coward · 2011-10-02 06:34 · Score: 0

This happens every time a new device comes out. The estimate for cost per unit includes the one-time costs of setting everything up. If they stop after the first production run, then it might cost that much per unit, but if they continue to produce more, the mean cost per unit will continue to drop until it becomes close to the incremental cost per unit.

Kindle vs KIN by Anonymous Coward · 2011-10-02 07:03 · Score: 0

Amazon's Kindle Fire will end up like Microsoft KIN.

Seriously, what the hell is Mr Bezos thinking? IPads have won the slate battle, and other manufacturers are struggling to even compete with Apple's offering.

Do you honestly think someone is going to buy a watered down, Amazon-centric device?

cost estimate? by chentiangemalc · 2011-10-02 07:54 · Score: 1

the Amazon CEO said these devices would not be sold at a loss. How accurate is this estimation of cost? If Amazon is producing millions it can probably reduce cost to manufacture significantly.

Paid content delivery device, not a "cheap" iPad by thomasmoreorless · 2011-10-02 08:03 · Score: 1

I agree with others who compare the Fire to a game console, such that the manufacturer is willing to lose money on the device in exchange for an almost guaranteed revenue stream via future content purchase. I had this reaction almost immediately once I learned that the Fire is very locked down running the default firmware. This is nothing close to a "cheap" iPad competitor, the way that the HP TouchPad turned out to be. It is all well and good for Amazon to say they will do nothing to prevent rooting the device right now. I don't recall Sony, Microsoft, or Nintendo making much noise about that when they released their consoles either, but they have steadily increased the countermeasures over time (as the consoles have aged).

Creating a Distribution Channel by Anonymous Coward · 2011-10-02 13:05 · Score: 0

They are a Creating Distribution Channel which is invaluable when it comes to delivering the product... electronic books.
The video game console industry does the same thing except this is much cheaper in terms of scale.

Slashdot Mirror

Amazon To Lose $10 Per Kindle Fire

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