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Who's Buying Six-Packs of Amazon's $50 Tablet?

By Adam Levy - Sep 24, 2015 at 2:20PM

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Amazon may find an in with its new tablet and the education market, and hooking children on its products could be all-around smart.

The new 7-inch tablet from Amazon. Source: Amazon

Amazon (AMZN 3.06%) announced six new devices earlier this month -- two versions of Fire TV and four tablets. All of them are based around selling more Amazon Prime subscriptions and Kindle ebooks, which will offset the low prices of all these devices. However, there's one way to get the new 7-inch tablet for even less than Amazon's regular $50 price point.

If you buy five, the sixth one's free.

Outside of families with quadruplets and uncle's without a desire to personalize Christmas presents, there isn't much consumer demand for bulk purchases of low-end tablets. Enterprises, meanwhile, require a bit more computing power than what the new Fire tablet delivers. But schools may be the prime audience for Amazon's bulk purchase option.

A $7 billion computer market
Last year, the market for desktops, laptops, and tablets in U.S. schools totaled $7 billion, according research firm IDC. That market is dominated by Microsoft,Apple, and, more recently, Google.

Google's Chromebooks have come on strong over the last couple of years, taking share away from both Microsoft and Apple. The key strength of Chromebooks is that they're very low cost, available for as little as $169. Microsoft has responded by partnering with OEMs to produce low-cost Windows machines and reducing the licensing cost of Windows.

Indeed, cost is a major concern to schools, but there's still strong demand for tablets. The iPad, in particular, has sold well in schools. In 2013, Apple sold 2.9 million iPads to schools, but that number fell to 2.7 million units last year. Still, iPads accounted for over 20% of all computing devices shipped to schools in 2014, and the sales decline is in line with total iPad sales.

With the new Fire tablet, Amazon is combining the format schools have shown a demand for with a price point that's well within their budget. Considering you can get six Fire tablets for less than the price of the least expensive iPad model, Amazon could find a niche in the education market.

The opportunity
The opportunity for Amazon in the education market isn't something it can immediately realize. Even if it sold 3 million Fire tablet units to schools next year, that would only account for about $125 million in revenue from hardware sales. And that's extremely low-margin revenue. To put that in perspective, Amazon probably generated $125 million in sales this morning alone.

The real opportunity is to establish stronger relationships with both schools and students, and get them to use Amazon's digital products like Instant Video, Prime Music, app sales, and the Kindle book store. Those are products that scale, and that's what Amazon does best.

Additionally, it presents the opportunity for Amazon to foster a relationship with a young audience. Amazon is investing heavily in kids programming for Prime Instant Video, kids apps, and children's books, and it has a version of the new Fire tablets designed for kids. If kids are used to having Amazon's media at school, it could influence parents' decisions when it comes to subscribing to Amazon Prime.

Amazon Prime subscriptions are the real opportunity for Amazon -- just as with all its device sales. Amazon Prime subscribers buy more stuff from Amazon, allowing Amazon to make a significant profit on most subscribers despite footing the bill for two-day shipping on all orders. Getting its foot in the door with kids and the education market is another way for Amazon to build its growing base of Amazon Prime subscribers.

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