Surely, at $199, the upcoming Kindle Fire can't be much of a cash cow for Amazon. Or can it? IHS iSuppli has put together an estimate of the device's bill-of-materials cost, and it reckons that the device is worth $191.65 in parts, or $209.63 once you factor in "manufacturing expenses." That suggests Amazon will be selling each device at a slight loss. There is a twist, however, as the research firm explains:
When further costs outside of materials and manufacturing are added in—and the $199 price of the tablet is factored along with the expected sales of digital content per device—Amazon is likely to generate a marginal profit of $10 on each Kindle Fire sold.
However, the real benefit of the Kindle Fire to Amazon will not be in selling hardware or digital content. Rather, the Kindle Fire, and the content demand it stimulates, will serve to promote sales of the kinds of physical goods that comprise the majority of Amazon’s business. 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 Walmart and other large brick-and-motor retailers, Amazon’s content business is designed to lure in consumers to buy such everyday goods as well as other money-making items.
IHS iSuppli goes on to note that Amazon's business model—peddling cheap hardware and offering access to media in order to draw customers to its retail business—is "unique" among makers of tablets and e-book readers. The research firm also believes that the Kindle Fire has the potential to become the second-most popular tablet behind the iPad. (That title would only apply in the United States, of course; Amazon hasn't announced plans to release the Kindle Fire elsewhere.)