Before the Kindle Fire, the tablet world offered really only one device: the iPad. Its dominance was overwhelming and many wondered how others could gain a foothold in the space. The Kindle Fire became the first device to prove that real success in the tablet space was possible – outside of the iPad. But not everything about the Kindle Fire was as magical as it seemed. In order for Amazon to sell their tablet at its impossibly-low price of $199, it had to sell at a loss.
When adding up the original components back in 2011, the cost of the original Kindle Fire worked out to around $210. This was without considering labor, logistics, packaging, and distribution. However, part of the reason Amazon feels comfortable suffering millions in losses across its Kindle Fire line, is that Amazon realizes what it is: a service. Just like how Google works to develop products to get you into their ecosystem, Amazon tries to accomplish the same feat in a slightly riskier way.
This is also not the first product/service Amazon has offered at a loss either. Currently Amazon Prime is sold at a loss of $11 annually per member, and you can bet the new Kindle Fire HD series will be no different. This is all part of a ploy to get you committed, loyal, and using Amazon the service, and it’s working.
But another problem moving forward, and it’s a big one, is how the Amazon Kindle Fire’s OS is built. It uses Android, an OS developed by one of Amazon’s chief competitors, and one just emerging successfully in the tablet space. So in a world of Nexus 7 Tablet’s that run more up-to-date versions of Android, it seems Amazon is bound to fail against Google (unless they build their own OS). Then you have to consider the iPad Mini problem, which is not fully defined until its likely October launch, but one bound to spell its own individual challenges for both Amazon and Google.
As a consumer, Amazon’s prices are special, but as a business it could hurt them with others catching on. The Kindle Fire woke up a tablet industry that really wasn’t reevaluating price. With products like the Nexus 7 or the (rumored) iPad Mini, incentive to commit to Amazon might be more difficult than a year ago. Also, Amazon wants you to commit to their platform without a smartphone offering. In places where Google and Apple can breed loyalty in other spaces, can Amazon really make enough headway with just a tablet?
Google has already launched the $199 Nexus 7 (selling it at cost), and Apple’s iPad Mini could come in at something like $299. So in a world where Google finally got the tablet right, and one where Apple might offer more for less, can Amazon really compete selling at a loss and win?
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