Amazon has been selling Kindle Fires for low prices to encourage more people to pick them up. As Jeff Bezos has explained many times, Amazon’s goal is to make money when you use their devices. So how much does the company need you to spend to make a profit? The latest report by ABI Research suggests that Amazon needs an average profit of $3 per month to gain profit of 20% over the life of its tablets.
Considering the probable margins of app and content sales, our research shows that Kindle Fire is a credible proposition … We expect that there will be a certain level of ‘innovation plateauing’ in mobile hardware taking place over the next five years, and that would certainly work in Amazon’s favor. Its future devices are likely to require less cross-subsidy than the ones we’ve seen so far,
explained ABI senior analyst Aapo Markkanen. That is why Amazon is making it a bit difficult to use third-party stores on its Kindle Fires. The company won’t be able to offer low prices on its devices if its customers don’t buy apps and other content. How far can Amazon push this strategy? That remains to be seen.