The Washington Post featured a story on Friday reporting that Amazon (NASDAQ:AMZN) is losing $3 on every Kindle Fire sold. According to market research company IHS iSuppli, it costs Amazon (NASDAQ:AMZN) $201.70 to produce the Fire and they are retailing the item at just$199.
Pricing below production price is nothing new for Amazon (NASDAQ:AMZN), as it currently executes the same strategy on its Kindle e-reader that now retails for just $79. Amazon (NASDAQ:AMZN) counts on the sale of media and other items sold through its devices to turn a profit. The Kindle Fire also comes with a free Amazon (NASDAQ:AMZN) Prime membership, which is normally an additional $79 per year. Prime encourages increased spending through Amazon (NASDAQ:AMZN) by offering free shipping, on-demand videos, and a Kindle lending library where subscribers can borrow a Kindle book for free each month.
IHS likened Amazon’s (NASDAQ:AMZN) business model to that of cellular phone carriers. Cellular phone companies often subsidize the cost of phones in order to sell the wireless plans that accompany them which provide a reliable and continuous stream of income. Amazon (NASDAQ:AMZN) is wisely looking to create a long term cash cow with each product sold rather than just a one-time up front sale.
Competitors to Watch: eBay Inc. (NASDAQ:EBAY), Wal-Mart Stores, Inc. (NYSE:WMT), Overstock.com, Inc. (NASDAQ:OSTK), Google Inc. (NASDAQ:GOOG), Barnes & Noble, Inc. (NYSE:BKS), Costco Wholesale Corp. (NASDAQ:COST), GSI Commerce, Inc. (NASDAQ:GSIC), Hot Topic, Inc. (NASDAQ:HOTT), PC Mall, Inc. (NASDAQ:MALL), Apple (NASDAQ:AAPL) and Best Buy Co., Inc. (NYSE:BBY).