Amazon last month went ahead and announced four new products together in one media event. The online retail giant announced Kindle, Kindle Touch, Kindle Touch 3G and Kindle Fire, all priced lower than their competitors in the market.
The Kindle, Kindle Touch and Kindle Touch 3G are e-readers, whereas Kindle Fire is a tablet priced very low at just $199.
Amazon has priced Kindle at $79, Kindle Touch at $99 and Kindle Touch 3G at $149.
A recent virtual teardown analysis by market research firm IHS iSuppli estimates that Amazon will bear a loss of $5 on the sale of every unit of its cheapest e-reader, the Kindle.
The teardown report shows Kindle's total cost of production will reach $84, while the company will be selling it for $79 only.
Like every other e-reader and tablet, the cost of display is highest in Kindle also. Kindle's display 6 inch E Ink display comes for $30.50. Amazon spends $30.37 on main PCB, $15.08 on enclosures, $2.06 on box and $0.59 on interface PCBs. This brings Kindle's direct material cost to $78.59, which is just $0.31 less than its selling price.
After including manufacturing cost of $5.66, the bill of material reaches $84.25.
Now here comes the question as to why would Amazon sell its product at a loss of more than $5.
As Amazon planned its strategy for Kindle Fire when it priced the tablet for $199, despite spending $201 on its manufacturing, it is going to make profit out of its loss making low cost e-reader in the same way.
With the strategy in place, it should help Amazon make quite a bit of money from the Kindle. It is hoped the e-reader will stimulate the sales of the physical goods that Amazon offers.
At the time of Fire's teardown, iSuppli said, Amazon doesn't make a substantial profit on sales of Kindle hardware and content such as e-books and music. Instead, the Seattle-based online-retail giant generates its profits on sales of shoes, diapers, and every other kind of physical product imaginable. Similar to Wal-Mart and other large brick-and-mortar retailers, Amazon's content business is designed to lure in consumers to buy such everyday goods as well as other money-making items.
Following are the specifications of the Kindle:
Display: Amazon's 6 diagonal most advanced E Ink display, optimized with proprietary waveform and font technology, 600 x 800 pixel resolution at 167 ppi, 16-level gray scale.
Size: 6.5 x 4.5 x 0.34 (166 mm x 114 mm x 8.7 mm)
Weight: 5.98 ounces (170 grams)
On-device storage: Up to 1,400 books or 2GB internal (approximately 1.25GB available for user content).
Cloud storage: Free cloud storage for all Amazon content
Wi-Fi: Supports public and private Wi-Fi networks or hotspots that use the 802.11b, 802.11g, or 802.11n standard with support for WEP, WPA and WPA2 security using password authentication or Wi-Fi Protected Setup (WPS); does not connect to WPA and WPA2 secured networks using 802.1X authentication methods; does not support connecting to ad-hoc (or peer-to-peer) Wi-Fi networks.
Content Format supported: Kindle (AZW), TXT, PDF, unprotected MOBI, PRC natively; HTML, DOC, DOCX, JPEG, GIF, PNG, BMP through conversion.