Tuesday, 22nd November 2011
Nancy Davis Kho
Remember that old adage of the foolish businessperson: "I lose money on every product I sell, but I make it up on volume"? According to a story published today on the Christian Science Monitor, Amazon could be singing that song with regard to the Kindle Fire. The report from CSM says that market research firm iSuppli found that for every US$199 device sold, Amazon is spending US$201.70. That compares poorly to the Apple iPad, which turns a profit of $175 on each iPad, according to iSuppli's calculations.
But who's the foolish one? Amazon has tried this strategy before, keeping the price point of the original Kindle well under what competitors were charging for similar eReaders. The result? The device flew off the shelves, consumers started downloading content to the point where switching costs became onerous, and the Kindle became the dominant eReading platform.
Why wouldn't the company try for a repeat with the tablet market, when the KindleFire, which shipped this week, is receiving rave reviews all around? ReadWriteWeb reports that Amazon has upped its initial production run by one million, to reach five million for this holiday season. Still a drop in the bucket compared to iPad's dominance in the tablet market, with something like 28 million iPads, but Apple has reason to be nervous. A ChangeWave survey this week revealed that five per cent of early adopters surveyed planned to purchase a KindleFire, and of those, 26% would delay or forgo purchase of an iPad.
Factor in the announcement of the Barnes and Noble NookTablet, as well as the price drop of the NookColor to $199 which Forrester eReader analyst Sarah Rotman Epps discusses in a recent blog post, and it's clear that Apple's going to have its hands full with low cost, high-quality alternatives to the iPad over the coming months.
One small note of caution: if you're taking your KindleFire home for the holidays via air travel, you may not want to take it out of your bag when you’re passing through security. According to a story on The Telegraph UK, Kindle Fire owners are complaining that their new devices are being damaged as they pass through x-ray scanners. It may be that the culprit is static electricity, not the x-rays, but to be on the safe side if you're travelling to London Online with plans to show off the newest tablet this week - keep those Kindle Fires stowed away!
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