Today's announcement that Amazon was launching a $199 seven inch Android-based tablet device called the Kindle Fire has rocked the tech and consumer electronic world. One of the reasons is the ultra low price. While it lacks a number of features that other seven inch tablets have such as a camera and 3G connectivity there's no doubt that the features it does have, plus the price point, will make it attractive to users.
But is Amazon taking too big a risk by lowering the price of the Kindle Fire? AllThingsD.com reports that according to a note sent out by Piper Jaffray analyst Gene Munster, "Amazon is likely losing about $50 per Kindle Fire." While he doesn't divulge how he knows this kind of info, he does compare that projected $50 loss to Apple's profit margin of 30 percent for every sale of its iPad tablet.
So if Amazon is indeed losing a lot of money per sale of the Kindle Fire, how does it expect to make a profit? Amazon may be taking a lesson from video game console makers. When a new console comes out from Sony or Microsoft it's priced at a loss, hoping that they will make up the money from sales of games. Amazon might be doing the same thing. It might sell the Kindle Fire for a loss but if lots of people buy it they might also buy a lot of games from Amazon's Appstore, purchase lots of books for its Kindle App, and sign up for the $79 Amazon Prime service to stream movies and TV shows.