Amazon charges a mere $79 for their new budget model Kindle, but according to a recent analysis from IHS iSupply, the e-reader costs approximately $84 to manufacture. Yes, that makes this Kindle $5 more to make than it costs for you to own it. Before you go wondering if Amazon’s marketing department has gone batty, remember that selling for a loss is a standard operating procedure these days.
The video game console business had Sony charging $499 for a PlayStation 3 retail unit that costs an estimated $805 to produce. Why they do this is simple — Sony wants to sell games, licensing, and services to you. They need you to have the hardware that runs it first. So, they are willing to take a hit on the initial sale to get a foot in the door and make back the rest of the money later.
The same can be seen in mobile phone sales. That phone that’s $99 with a contract is actually over $500 to buy directly, but the carrier subsidizes the price because you need a handset for them to sell you their services.
In the same vein, Amazon hopes to sell you books and content for the Kindle, but needs you to have the device first. This seems fair enough, but apparently, Amazon has other plans to financially support sales of the Kindle as well: ads that appear on the screensaver and bottom of the home screen. Don’t worry, you have the option to remove the ads by ponying up another $30 to opt out of their “Special Offers”, but that now makes the budget e-reader a $109 purchase. Combine that with the content sales, and suddenly $84 to manufacture seems to make perfect sense.
I have the Kindle and the ads are nothing… a screen saver image and a small banner across the bottom of the menu screen. Way less ads than most apps on my Droid!
According to friend of mine, the ads are the best reason to buy the Kindle. The deals include exclusives good enough to eventually pay for the cost of the device in the first place.
Yeah, the “with ads” part is why they can offer the thing at an apparent loss. They’re not really losing all that much, they’re just not getting the expense covered by the mere purchase of the object. Me, I don’t like having clothes that are billboards for vendors (I’ll make specific exceptions — like for Coca Cola), and I don’t want ads on equipment I’m likely to be using everyday. That’s one reason why my principal email is on my domain-hosted account (for which I pay) rather than any of the “free” emails I have. I hate the distractions of ads and news feeds cluttering the webpage.