Amazon needs a profit of “about $3” from Kindle Fire apps and content in each month of the tablet’s lifespan to achieve a profit margin of 20 percent from the proposition, according to ABI Research.
With the device hardware sold at a low price with the intention of generating income from content sales, the analyst firm has concluded that “the cross-subsidised device model that Amazon uses is a viable strategy”.
Aapo Markkanen, senior analyst for the firm, said: “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 favour. Its future devices are likely to require less cross-subsidy than the ones we’ve seen so far.”
It was also noted that the launch of the Kindle Fire is a “defensive play, born out of necessity”.
Markkanen continued: “If Amazon bet its post-PC future only on the web and apps, it would be dangerously exposed to the likes of Apple and Google. Whoever controls the platform has a more frictionless relationship with the user, and that relationship can become real poison for any third party that relies on the same platform for its own business.”