I think most of us knew that Amazon’s Kindle Fire would would be a resounding success when it hit the market.
The lucrative tablet space had been clamoring for a sub-$200 tablet running Android with a quality ecosystem. Sure, the Amazon tablet can’t complete on performance with the iPad, but many people are looking for a budget-conscious device, making the Fire a perfect choice for their needs.
The Fire proved to be very popular indeed, and the 7-inch tablet sold by the hundreds of thousands.
As you may recall, when the tablet first went on sale, Amazon was reportedly taking a slight loss on each Fire sold, to the tune of $2-$3 per unit.
However, as it turns out, Amazon is now making a significant amount of money off each Fire sold – thanks to its robust ecosystem of software, movies, and books.
“Kindle Fire unit economics are likely to be more favorable than consensus expectations, based primarily on frequency of digital goods purchases,” RBC Capital analyst Ross Sandler confirmed in an industry research note obtained by AllThingsD.
“Our assumption is that Amazon could sell 3-4 million Kindle Fire units in Q4, and that those units are accretive to company-average operating margin within the first six months of ownership. Our analysis assigns a cumulative lifetime operating income per unit of $136, with a cumulative operating margin of over 20 percent.”
The question of whether buyers will make up the loss on the hardware in content purchases has long been bandied about, and it seems, at least according to Sandler; that Amazon has made a good bet and will turn a tidy profit.
The additional $136 spent over the lifetime of the device is mostly splashed out on eBooks. Indeed, 80% of the Fire buyers have purchased books, with 58% of buyers grabbing more than three ebooks in the first two months of ownership. The average Fire owner is good for five eBook purchases a quarter, estimates Sandler.
The typical owner is also expected to buy three apps per quarter, along with videos and music downloads. I can certainly see RBC’s analysis as spot on, as Amazon has created an impressive ecosystem of eBooks, movies, music, apps, and other content to consume on its affordable Kindle Fire tablet.