Great article at ZDNET that talks about the math that Amazon use for pricing their tablet at 199 dollars.
Larry Dignan goes into detail about some of the costs that Amazon have taken into cosideration as they came up with their price and how Amazon was uniquely positioned to do this.
For many companies, subsidizing the Kindle Tablet wouldn’t make much sense, but Amazon has unique assets. Here’s a look at the numbers behind the Kindle Fire.
- $250: Cost to manufacture the Kindle Fire, according to Piper Jaffray estimates.
- $199: Price of Kindle Fire.
- $50: Estimated Amazon loss, according to Piper Jaffray.
- $79: Cost of Amazon Prime subscription.
- $28: Net gain on a Kindle Fire assuming every tablet buyer becomes an Amazon Prime subscriber for one year. Conservative estimate since Prime subscribers spend more.
- 10 to 20 percent: Potential earnings downside if Kindle Fire is a huge hit, according to Piper Jaffray. Caveat: Prime subscriptions could drive physical good sales.
- 160 basis points: Estimated operating margin decline in the fourth quarter based on increased media and device expenses, according to Barclays Capital analyst Ben Reitzes.