The Guts of the Kindle Fire Reveal Amazon’s Business Model
Bloomberg took apart the Amazon Kindle Fire to see the actual sum of its parts (link to video below). A fascinating look inside the Kindle Fire reveals its components AND its business model. It costs $201.70 to make a Kindle Fire. That’s a couple bucks more than what the Fire tablet costs in the store. The Kindle Fire is really a Trojan horse, a loss leader. But despite losing money on every sale, Amazon hopes to make it up in volume; in ebooks, movie downloads and all retail digital and beyond. Apple and Amazon are approaching the same problem with very different business models. If Apple were going to sell something that cost $200 to make, they would price the device closer to $270. Apple typically operates with a 30-35% margin.
Amazon is taking a totally different approach. They are not selling you a tablet at a profit, they are selling you a storefront, a window to Amazon through which you are going to buy content like music and movies. But you’re also going to buy apps from the Amazon store and all of the other products and services that Amazon is so well known for.
Let’s break down the components and cost of the Kindle Fire…
Display and touch screen: $87.00
The display and the touchscreen cost collectively about $80. That represents nearly half of the cost to manufacture the Kindle Fire. The display has a lot in common with the iPad. Just like the iPad, the display is from LG display. So it’s the same supplier and the same fringe field switching technology.
The Battery: $16.50
The battery is lithium ion polymer; one of the most advanced battery technologies out there right now. And also one of the most expensive.
The Enclosure: $14.40
The enclosure is the plastics, the metal, and the speaker assembly. It includes all the screws, bits of tape and shield.
The tiny printed circuit board is the brains and brawn of the Kindle Fire. It’s actually two chips in one. There’s a chip on top. Underneath there’s another chip. The chip on top is LP to DRAM, that’s actually DRAM memory and it is supporting the applications processor from Texas Instruments: the OMAP 4430 which is mounted directly underneath. That’s flash memory. We don’t know if Amazon makes money on this device but Texas Instruments might.
Application processor: $14.65
The heart of the Fire tablet is a Texas Instrument chip. Outside of memory, most of the other major integrated circuits are also provided by Texas instruments.
WIFI : $4.50:
The WIFI module comes from a relatively unknown manufacturer.
Other chips: $23.20
The charger and the box: $3.25
Manufacturing costs: $7.10
Contract manufacturer’s margin: $9.00