How did Amazon manage to price the Kindle Fire for $ 199 ?

An article in Bloombergbusinessweek (Oct 3, 2011 edition) suggests that Amazon’s new Fire tablet’s amazing $ 199 price point may be related to its smaller screen but also subsidy from potential margins from sale of toys, diapers and electronics. The smaller hard drive (8 gigs) assumes use of the Amazon cloud service for books, songs etc. The customized Android operating system makes purchases from Amazon easier and thus enables even more purchases from the Amazon ecommerce sites. All of this contributes to the current 50 % growth per quarter upto $ 50 billion in 2011.  Will Amazon’s strategy of subsidizing the input hardware i.e., the tablet, enable the company to compete effectively in the tablet space with Apple ? Could Amazon’s consequent retail sales increases justify this strategy ?  Will Amazon’s low margin and low price strategy, with limited capability, split the tablet market with Apple’s high price and high margin solution with a far greater capability ?

About aviyer2010

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1 Response to How did Amazon manage to price the Kindle Fire for $ 199 ?

  1. This is a perfect parallel to video game consoles. Sony had negative margins on their Playstation 3 at launch because they had such high margins on their software (and also to prop up the BluRay disc format, which ultimately succeeded in beating HD-DVD). Amazon gives you an exceptional value on the hardware so they can make big profit on the software.

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