Q: I saw that Amazon’s new tablet computer is being sold for only $199! The iPad 2 starts at $499. How is Amazon able to make their product so much cheaper?
Tablet computing is one of the hottest topics today in technology today, and the major companies are jockeying for position as prices fall and more and more people consider purchasing a tablet for their personal computing needs.
But Amazon’s entry into the tablet market comes with a shockingly large drop in price: the Kindle Fire is $199, a full $300 cheaper than Apple’s iPad 2.
The surprising price announcement has led many to speculate how exactly Amazon is able to do it. Business Insider concluded that the Amazon “almost certainly” loses money on every Kindle Fire sale.
Others aren’t so convinced, and have pointed out that the Fire’s features, including wi-fi only connectivity, a smaller screen, no camera or microphone and shorter battery life, cut back on costs, and that smart hardware decisions make production costs a bit below $200, so Amazon makes a small profit on each sale.
Either way, why wouldn’t they just raise the price by $100 or $150, which would still be much cheaper than the iPad but would earn Amazon more money?
The main reason is the fact that Amazon does not only control the hardware, but also all of the content that is available on the device. What will people do on a Kindle Fire? Here are some of its key features:
- 18 million movies, TV shows, songs, magazines, and books
- Thousands of popular apps and games
- Amazon Prime members enjoy unlimited, instant streaming of over 10,000 popular movies and TV shows
If you want any of this great content that is perfectly optimized for your device, you’ll be purchasing that from Amazon as well. And this is where their true profits lie.
eWeek.com points out that this model is similar to Gillette selling cheaper razors and making their money on blades.
Moreover, the $199 price tag means that many more people will be buying a tablet who wouldn’t have been able to afford one otherwise, and they too will be buying from Amazon’s enormous library of books, music, TV shows, movies and more.
The Kindle Fire is currently available for pre-order, and will be released on November 15. Only time will tell whether Amazon’s bold pricing will end up being a good decision, but it certainly seems like a smart move.
Andrew Walsh is the owner and editor of Social Web Q and A. He is a freelance writer, academic librarian and web entrepreneur. Check out his book Savvy for the Social Web.