We’ve learned that even though the Kindle Fire sells for only $199.99 it actually costs slightly more than that to manufacture and sell them. What normally sounds a little bit silly – selling devices for a loss – is actually turning out to be rather profitable for Amazon. According to a new survey conducted by investment firm RBC, each Kindle Fire is found to generate more than $100 in added revenue for Amazon.
“Kindle Fire unit economics are likely to be more favorable than consensus expectations, based primarily on frequency of digital goods purchases. Our assumption is that Amazon could sell 3-4 million Kindle Fire units in Q4, and that those units are accretive to company-average operating margin within the first six months of ownership. Our analysis assigns a cumulative lifetime operating income per unit of $136…” -RBC Capital analyst Ross Sandler
With around $136 of additional revenue over the life of each Kindle Fire this means people are using the device in exactly the manner that Amazon had hoped. Where’s the money coming from? Digital books and apps, what else?
According to the survey, roughly 4 out of 5 Kindle Fire owners have purchase ebooks, with nearly 60% of them buying more than three of them in the first 60 days of ownership. Assuming an average cost of $10 per book and a rate of 5 ebooks per quarter, this is where you arrive at the $100 per year.
In terms of apps and games, two-thirds of Kindle Fire users have already purchased at least one title with 41 percent of them already purchasing three or more. Three apps per quarter averages out to $9 every three months. Toss that into the $100 estimate and there you have it – $136.00 per year.
After some of the figures tossed around last year the estimated 3-4 million tablets sold sounds a little low to us. Either way, it already sounds like winner. At more than one million Kindle Fires sold per week, it’s easy to picture Amazon being happy with the early results.