Amazon Kindle Fire Could be More Profitable Product Than You Think
We all know that the Amazon Kindle Fire sells for only $199.99, and Amazon reportedly losses $2 to $3 on each sell. But selling a device for a loss – Amazon is actually making profitable money from it. According to a survey conducted by investment firm Royal Bank of Canada (RBC), each Kindle Fire is found to generate more than $136 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,” said RBC Capital analyst Ross Sandler on the research. “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, with a cumulative operating margin of over 20 percent.”
RBC has conducted a proprietary survey of 216 Kindle Fire owners based on how they’re using their new tablets, and Amazon’s potential profit and revenue from selling software, hardware, digital and physical goods.
The brokerage firm estimates that on an average, Kindle Fire owners would purchase five e-books per quarter, and assuming an average selling price for each e-book is $9.99 and Amazon’s commission is 30 percent, the company would end of with $15 per Kindle each quarter, a high margin for revenue.
In addition, Sandler estimates the other revenues will come from Apps. Typical Kindle Fire owners would purchase three paid apps per quarter, and assuming each paid app would generate a 20 percent margin, the company will make another $9 per Kindle Fire in revenue. The rest will come from digital goods, games, video-on-demand purchases and rentals, Prime memberships and physical goods sales – ending the figure at $136.
Amazon recently revealed new figures about the success of the Kindle Direct Publishing (KDP) Select program. The program allow customer to borrow one book per month and in return Amazon earned $1.70 per borrow. The company has increased funding to the program by $200,000 to a monthly $700,000 by lending more than 295,000 KDP books in December.
The Kindle Fire has become extremely popular throughout the holiday season and was considered one of the most connected devices from a survey by location-based mobile media company JiWire. Millennial Media has also seen growth for the Kindle Fire on its mobile ad network. Overall the Kindle Fire is a win for Amazon’s bottom line, and will provide a boost to its existing ecosystem.
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