It seems as if the Fire that Amazon.com (Nasdaq: AMZN ) kindled has lit up. I had expressed my reservations about the product and its acceptability, but the initial response to Amazon's low-budget tablet has been overwhelming, so much so that the company is accelerating production in the wake of supersonic demand. Now, it makes sense to dig deeper into the prospects of this product and how Amazon could turn out to be a winner in the long run.
An important factor to consider while launching a new product is whether it has the ability to recover costs. Currently, Amazon is almost breaking even by producing the tablet at $201.7 and selling it at a cheap $199. As the company pumps up production, the cost should come down further and generate profits.
And remember, this doesn't take into account the revenue each tablet will generate once it reaches the hands of customers through online sales, which are supposed to drive the success of the Fire. So all in all, the future looks quite rosy for the Fire as Amazon gears up to cash in on the holiday season.
The Fire may be lacking in versatility compared to Apple's (Nasdaq: AAPL ) iPad or Google's (Nasdaq: GOOG ) Android-enabled Motorola (NYSE: MMI ) Xoom, but this space is not where it's meant to be. It is meant to rule the roost in the low-budget tablet segment, where its prime rival is Barnes & Noble's (NYSE: BKS ) Nook tablet, which is priced at $249 and offers double the memory of the Fire and a faster processor.
However, considering the wide array of content available on the Fire compared to the Nook, Amazon could well see out the challenge posed by Barnes & Noble. And if you were concerned about the memory and processor speeds, then you'd likely opt for a Samsung tablet or an iPad instead of a low-budget gadget.
The macro factors
Economic uncertainty could well turn out to be a blessing in disguise for Amazon. Considering how tablets and mobile computing are fast becoming a part of our daily lives, the Fire, with its attractive price tag, is easy on the pocket. Amazon's expectation of selling 5 million units of the tablet in the ongoing quarter bears testimony to the fact that it has been a hit among customers.
The Foolish bottom line
Maybe I was a little too apprehensive in my earlier dissection of the tablet, but the package the Fire brings along could take it a long way. Amazon's margins may suffer a bit in the short run as it looks to turn the tablet completely profitable, but its prospects are certainly looking bright going ahead. Once the Fire starts making money, it will hopefully bring the oomph factor into the company's margins as well.
Add Amazon to your Watchlist, and keep track of how it builds on the strength of its Fire.