According to some new estimates from ABI Research, it looks like Amazon only needs to make about $3 per month on apps or other content for the Kindle Fire to generate a 20% profit. As most of you know, Amazon sells their Kindle Fire tablets below cost, that way they can sell them as some of the cheapest tablets on the market. They’ve been doing this since the original Kindle Fire was introduced back in the fall of 2011. Google has since started doing the same thing, except they sell at cost. Both Amazon and Google sell their devices cheap and make a profit on the content. Like Apps, books, movies, and more. But this strategy hasn’t proven to be all that good for Amazon lately. According to their recent quarterly reports, Amazon has been losing or making small profits. This has been the same for the last four quarters.
But Amazon hasn’t given up. Their are some prospects for it getting better over time. According to Senior ABI analyst Aapo Markkanen, “Considering the probable margins of app and content sales, our research shows that Kindle Fire is a credible proposition.” He went on to say, “We expect that there will be a certain level of ‘innovation plateauing’ in mobile hardware taking place over the next five years, and that would certainly work in Amazon’s favor. Its future devices are likely to require less cross-subsidy than the ones we’ve seen so far.”
Markkanen also said that Amazon isn’t yet making money on the Kindle yet. And that they need more scale, more revenue and more margin. He went on and gave an example of Amazon Prime and Netflix, “For example, with Amazon Prime, Netflix only recently got margins to 10-15 percent – and Amazon Prime is still around 5-10 percent.”
But ABI is saying that there are signs of that happening soon, possibly as soon as 2014. The Kindle Fire is the leading selling Android tablet, although many would argue that it’s not an Android tablet. Amazon sold six million units last Christmas and also captured significantly more marketshare than other Android tablets during the holiday season. But selling all that hardware at below cost is what’s hurting Amazon right now.
So how long before Amazon starts making the Kindle Fire more profitable? Hopefully it won’t be long. Even though they use a forked version of Android on their device, it’s still a great tablet at a great price, and we’d hate to see Amazon discontinuing the Kindle Fire. How many of you own the Kindle Fire?