Amazon Fire tablet sells for below cost

Online bookseller Amazon is going to flog its new keyboardless netbook for $10 less than its competitors, meaning that it hopes to recover its costs by flogging content.

IHS iSuppli have worked out that the new tablet computer costs $209.63 to make, based on the cost of the parts under the bonnet. But since it will sell it for $199, it means that Amazon will need to make up the cost somewhere else.

Its rival, Apple has managed to make its tablets lucrative by charging double, and then cleaning up on the content sales through the iTunes store. Amazon appears to have decided that it is better to tie people into its content.

Amazon’s billionaire Chief Executive Jeff Bezos unveiled the Kindle Fire at the lower-than-expected price on last week.

It put the fear of God into the lower end of the tablet market which is mostly running on Google Android operating system, although some pundits said that it will be the real rival to Apple’s iPad.

Other analysts such as Gene Munster, an analyst at Piper Jaffray, think that Amazon would lose roughly $50 on each Kindle Fire sale.

Wayne Lam, an analyst at IHS iSuppli said that Amazon could easily make that cost up by encouraging users to buy more products and services from the company.

This is based on the “razor-blade” model in which Procter & Gamble uses to sell Gillette handles and hit you for the costs of the razors later.

“When further costs outside of materials and manufacturing are added in — and the $199 price of the tablet is factored along with the expected sales of digital content per device. Amazon is likely to generate a marginal profit of $10 on each Kindle Fire sold,” the research outfit claimed.