The typically chatty Amazon.com (NASDAQ:AMZN) is surprisingly reticent when it comes to its proprietary Kindle e-book reader. It hasn't gone public with any sales figures. It didn't tip its hand as to the arrival of the new Kindle, even after the original model was sold out for several months. Good luck trying to get the leading online retailer to fess up on whether it sells its gadgets at a profit, or whether it's willing to take a small hit since it can make up the difference in digital downloads later.
That last mystery is a meaty one, and BusinessWeek is leaning on a teardown analysis by market-research firm iSuppli to arrive at a cost of $185.49 per unit, before any royalty payments come into play. That's a far cry from the $359 price that the company has been selling its Kindle 2.0 readers at since their February rollout.
Several hardware companies don't mind eating a loss on the proverbial razor if they can make it up with the blades. But if iSuppli's numbers are anywhere close to being realistic, Amazon could make a killing on the Kindle if it's profiting from both the razor and the blades. Consider how other companies go about their business:
- TiVo (NASDAQ:TIVO) sells its DVR boxes below cost, since they require high-margin monthly subscriptions.
- Green Mountain Coffee Roasters (NASDAQ:GMCR) sells its Keurig brewers at cost and cancels out the shortfall with its K-Cup refills.
- If you're wondering why entry-level Sirius XM (NASDAQ:SIRI) radios are so cheap, it's because the company can make it up with its $13-per-month subscription plans.
- Video-game giants Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) reportedly sell their consoles at a loss, and then sit back and collect software royalties for every title sold.
Perhaps the most important takeaway is that Amazon apparently has the flexibility to shave away at its Kindle selling price, aggressively. Yet it hasn't had to, for now. There are other e-book readers on the market, and the Kindle is clearly holding its own. However, it may want to lower prices as a way to either widen its market share or scare away potential entrants. It can even entertain lower e-book prices and follow Apple's (NASDAQ:AAPL) lead in making money on its iPod hardware while forgoing heavy markups on digital-music sales.
As long as sticking to a lofty $359 sticker isn't a deal-breaker in this price-sensitive economy, Amazon may very well be able to have its cake and eat it, too.
Stories that may have happy endings:
