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Kindle 2 Tear-Down Reveals Price of Components

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  • by arizwebfoot (1228544) * on Wednesday April 22, 2009 @03:57PM (#27678235)

    the Kindle 2's manufacturing cost is almost half as much as its retail price

    So . . . ?

    Is this supposed to be some new business model. I remember working at Monkey Wards and they would raise the prices 400% and then have a 1/2 off sale.

    It's the American way.

    • by ArcherB (796902) on Wednesday April 22, 2009 @04:07PM (#27678373) Journal

      Well, in fairness, Amazon could sell the units at a loss and make up the difference on digital book sales much like the console manufacturers do.

      But, I agree with you. If these units are selling, why lower the cost?

      • Well, in fairness, Amazon could sell the units at a loss and make up the difference on digital book sales much like the console manufacturers do.

        Aside from the Xbox, who sells consoles at a loss?

        • by cromar (1103585)
          Nintendo says Wii is not sold at a loss (or so I hear). PS3 is sold at a loss [mydigitallife.info].
          • The Wii is the exception (sold with a profit). Ditto the Gamecube (it was sold at cost), but all the previous consoles like PS2, Xbox, N64, Dreamcast, PS1, Sega Genesis, and Super Nintendo were sold at a loss, because manufacturers can make their money off the software licenses.

            The same model is used for inkjet printers which you can buy cheap, but then you pay through-the-nose to get replacement ink packs (one every 100 pages). Contrast that with laser printers which cost high initially (~$150), but use

      • by tixxit (1107127) on Wednesday April 22, 2009 @05:03PM (#27679137)

        But, I agree with you. If these units are selling, why lower the cost?

        Valve had a 3000% increase in sales of Left 4 Dead by cutting the price in half. Why lower the cost if they are selling? So you can sell even more!

        • by maxume (22995) on Wednesday April 22, 2009 @05:09PM (#27679217)

          If you are selling your entire production run of a physical good, cutting the price in half just means that you take in half the revenue.

          • Re: (Score:2, Insightful)

            by mysidia (191772)

            But it means you can increase the size of your production run and make even more, potentially.

            Esp. after your customers get a hold of the device and start buying other products from you to use on the device, and you have an exponential ram up in revenue.

            You know.. like give away the razor, sell the blades.

            It's short sighted to set the price of entry as high as possible, when it reduces the size of continuous recurring revenue, that occurs when customers buy stuff to use on their Kindle, which at a ba

        • by Anonymous Coward on Wednesday April 22, 2009 @05:34PM (#27679633)

          You do know that Kindle was sold-out for the longest time, since production couldn't keep up with demand?
          They have no need to increase the sales at this point.

          Also: there are very real dangers in lowering price for products; human mind tends to consider more expensive products as better, higher-quality things.
          Conversely, lowering price can dillute the brand.

          So there is very little point for Amazon to reduce the price significantly at this point.

          • Re: (Score:3, Insightful)

            by tixxit (1107127)
            True. On the other hand, increased demand gives them more reason to up the production rate. The Kindle is also very expensive for what it DOES (not what it is). An e-reader really should be significantly cheaper then, say, a Netbook.
            • by Bigjeff5 (1143585)

              Not really.

              The screen technology, already one of the most expensive parts of a netbook, is significantly more expensive in an e-book reader.

              E-ink is in no way similar to LCD technology, other than they both operate in a type of fluid to generate the pixels. How they do it is very different, and e-ink is much, much newer, and so more expensive. But the screens are getting better and the prices are falling, so it's a good thing. There is apparently even color coming some time soon. It's a good time to be

              • by tixxit (1107127)

                Not really.

                You missed my point, since I fully agree with you. Yes, E-ink is in no way similar, which is exactly what I'm saying. For what it DOES, it costs too much. It lets you read books. I can do that for $8/book. $350 can buy me a lot of books. However, for what it is (E-Ink display and all), the price makes sense. Personally, I love the idea and love to read, but $350 is still too much for what it will let me do. Once the price of the tech comes down (what it is), I'll buy one in a heart beat.

        • by shark72 (702619)

          "Valve had a 3000% increase in sales of Left 4 Dead by cutting the price in half. Why lower the cost if they are selling? So you can sell even more!"

          Each and every product has its own unique pricing curve. That's great for Valve, but you can't responsibly apply any assumptions to any given product.

          In general, keep in mind that even unit elasticity (where sales scale 1:1 with price) does not favor hardware products. In very simple terms... if your cost of sale of a product is $40 and you sell it for $100 (

          • by shark72 (702619)

            "if your cost of sale of a product is $40 and you sell it for $100 (ie. $60 in profit), cutting the selling price in half would require a 6X sales volume increase to make the same profit."

            Fixed that for myself.

            • by Eivind (15695)

              True. But digital goods typically have huge fixed costs and miniscule per-item costs.

              If your per-item cost is $1 and your selling-price is $59, then halving the price really does require double sales to give the same profit.

              Downloadable games (steam) have -very- low "per unit" costs.

          • by tixxit (1107127)
            I fully know, and I also fully expect that amazon has people who are much better at economics then me decide the price. However, your example does kind of prove my examples point, since they, in face, sold 30x more copies ;)
        • by anvilmark (259376)

          Amazon: "We're hemorrhaging money but we're selling LOTS of product!"

          Comparing a software product delivered electronically to a physical device that must be assembled, stored, shipped and maintained is an apples-oranges comparison.

          "Insightful"? "Funny" perhaps.

          • by tixxit (1107127)
            OK... Seriously, how can so many people miss the point. I could've used one of many examples where lower prices made a product sell more. I just chose one that was on Slashdot a few weeks back so that people would recognize it. Yeah, it is software, that does not change the fact that price and demand are intimately mixed. Lowering the price will attract more buyers. Yeah, you may not be able to produce 30x as many, but the 50% = 30x increase was obviously an extreme. Anyways, my point was a simple response
        • by whoda (569082)
          Physical goods that you have to manufacture and ship != Video games delivered online.
          • by tixxit (1107127)
            No shit. However, lowering prices has been shown to increase sales. Certainly not always, but that was my point, plain and simple, not your strawman.
          • by tixxit (1107127)
            Sorry, reread my previous point and realized I was being rude. Just got tired or reading, pretty much, the exact same reply 10x. The software example is an extreme case, which is why it proves the point so well. But, surely, the same reasoning can be applied to any product. Perhaps, in the end, some technical/physical/cost limitations make it infeasible, but you can always take a look at lowering the price as a way of increasing sales. And certainly, there is always a price point that will maximize revenue.
    • by Captain Splendid (673276) <capsplendid@g m a i l . com> on Wednesday April 22, 2009 @04:07PM (#27678381) Homepage Journal
      It's the Retail way.

      Fixed that for you.
    • by Yeef (978352)
      Keystoning [about.com] is a pretty common thing in retail. I don't think this is really news.
    • Re: (Score:3, Insightful)

      Wait, you mean people try to sell physical products for more than it costs to make them so they can profit off of the sale?

      What a novel concept!

    • by couchslug (175151)

      "I remember working at Monkey Wards and they would raise the prices 400% and then have a 1/2 off sale."

      "Buy now, and only pay two flint spearheads instead of four!"

    • Don't forget, it also comes with a lifetime of mobile internet.

  • by rodrigoandrade (713371) on Wednesday April 22, 2009 @03:57PM (#27678239)
    Is R&D, marketing, distribution, and profit.

    Big deal.

    Why is this news again??
    • by Anonymous Coward on Wednesday April 22, 2009 @04:03PM (#27678305)

      Also remember that each Kindle has an unlimited cell modem plan built in. Those aren't cheap.

      • by ceejayoz (567949)

        The cell modem is likely subsidised by the prices of books more than the initial hardware sale. Plus, they're relatively tiny files.

    • No kidding. (Score:5, Funny)

      by JCSoRocks (1142053) on Wednesday April 22, 2009 @04:04PM (#27678321)
      This. Just. In. There's a markup on retail goods! Also, the sky is generally blue and you need oxygen to live.
    • I notice that although this is being defended (and rightly so), there's not the amazingly defensive and outraged fanboy rampage that you get when you see articles like "iPhone components cost $120! ZOMG!"...
    • Re: (Score:2, Insightful)

      Agreed: all you people out there scoffing should go out and take a couple of post-secondary business finance classes. Typically, with any widget in the most generic business model, the cost of goods and services (COGS) is roughly 50% of the final price, +/- a few points. You figure 40%-45% for overhead, which consists of indirect costs such as R&D, distribution, administration, marketing, legal, etc., and the rest is profit.

      Producing a product isn't free. Who knew?

    • by jmorris42 (1458) *

      > Is R&D, marketing, distribution, and profit.

      I'd bet good money that isn't how it is accounted. The rest is an upfront prepaid wireless contract. They will book zero profit on the device, great for tax purposes. The money comes from the fact it is for all intents and purposes locked[1] to Amazon content which has nice phat margins.

      Remember that the intended use is to buy all of the content over the wireless. To make that more desirable they even toss in some free wireless goodies. If the Kindle

      • by Zerth (26112)

        Call me a twit, but how do they discourge it? It shows up as a flash drive, you drop text files on it, tadah. The Ipod is more discouraging to put your own music on without itunes, unless you reflash it.

        And if you wanted to use the search/annotation features, it'd still need a keyboard, unless you wanted to add a battery sucking touch film.

        I would have bought one if they hadn't gotten rid of the SD slot.

    • by rm999 (775449) on Wednesday April 22, 2009 @05:58PM (#27679985)

      Every time there is a Slashdot article about a tear down with estimate hardware costs, tons of people point out that x% is an appropriate cost, etc. No one is saying otherwise; we can safely assume that Amazon understands the supply/demand curves, has researched the market, and plans on recouping its costs plus some profit - in other words, has priced the Kindle as optimally as it can. But this doesn't mean the tear-down exercise was pointless.

      In my opinion, there is plenty of interesting information encoded in what the hardware costs. For one thing, it makes estimating marginal cost much easier, which is useful from a business perspective (if you can estimate manufacturing costs and sales, you can get a good idea of Amazon's revenue and costs - this is important if you are interested in investing in AMZN. Another interesting aspect is the relative cost of individual components. The high relative cost of the screen makes it clear that Amazon greatly values that aspect of the Kindle. We can expect to see further innovation in e-book screens, as competition will pay attention to this. Consumers should also be interested in information about Amazon's costs. If/when competition ramps up, I would expect prices to fall because of their healthy profit margin. And personally, as an electronics geek, I'm fascinated in how these types of devices are put together.

      • by smaddox (928261)

        if you can estimate manufacturing costs and sales, you can get a good idea of Amazon's revenue and costs - this is important if you are interested in investing in AMZN

        Or you could.. you know.. just look up their revenue and costs [marketwatch.com].

      • by guruevi (827432)

        No one is saying otherwise; we can safely assume that Amazon understands the supply/demand curves, has researched the market, and plans on recouping its costs plus some profit - in other words, has priced the Kindle as optimally as it can.

        As far as I know all this marketing research and optimization of price points is like looking in a magic glass ball and having a crapshoot at a price point. If it's a hot product, something people really want or something that's hyped enough, some people will buy it no mat

        • well integrated with an online bookstore

          Mod parent up. This is the signal lesson of the iPod. You MUST have store integration.

  • It's not like Amazon somehow magically doesn't have any overhead, shipping or design costs for the Kindle. They also have inventory costs, returned item costs and all the other gunk associated with manufacturing and selling an item.

    Having merely a 50% of the cost (not including IP) for a still pioneering device like this seems totally reasonable.

    • by brainproxy (654715) on Wednesday April 22, 2009 @04:07PM (#27678375)

      It's not like Amazon somehow magically doesn't have any overhead, shipping or design costs for the Kindle. They also have inventory costs, returned item costs and all the other gunk associated with manufacturing and selling an item.

      Having merely a 50% of the cost (not including IP) for a still pioneering device like this seems totally reasonable.

      Lets not also forget that Amazon pays not only for the bandwidth to deliver all that content, but also pays for the Wireless data service for EVERY unit out there, perpetually.

      • by rolfwind (528248)

        I bet the wireless coverage doesn't work on a per unit basis, it's either a set fee for amazon, % commission based on online sales, or based on data transferred for all the units.

        I don't think Amazon would enter into a deal where they would end up paying for units that are either dead or just thrown in the corner not being used.

      • Would I be mistaken in thinking Amazon gets paid each time data gets transfered?
        It's hardly likely they are paying line rental in the deal.

  • How is this news? (Score:5, Insightful)

    by stewbee (1019450) on Wednesday April 22, 2009 @04:00PM (#27678289)
    Is it a surprise to any one that the manufacturing costs are not as much as retail? The article mentions cost to build, ie materials alone, is $185.49. I did not see mention of SW development, so to think that the rest is profit is just silly.
    • Really.. (Score:3, Insightful)

      by Shivetya (243324)

      when my friend worked for one of the major rental places they sold for over 300% cost and rented for far much more. In my industry we are easily double cost to our resellers whose prices are 150 to 250%. People always underestimate the true costs of running a business. For some reason too many think some things are just free. However it is the business behind the items that set much of the prices. All that time leading up to launch is accounted for as well as maintaining the business and aiming for oth

      • Re: (Score:3, Interesting)

        by ausekilis (1513635)
        I used to work in a shop that sold music equipment. The cost to the business would be approximately 1/2 to 1/3 of MSRP, so even a 45% off "sale" would still net the shop some decent profit. Funny part was, there were slower moving items (like guitars/keyboards/drums) that had MSRP around 200% of cost, and faster moving items (like strings, sticks, cables) that had MSRP around 250-300% or higher.

        That's right, for a fast-moving item that cost us $1.50, MSRP would be $8, we'd advertise for $6. The best part?
    • Is it a surprise to any one that the manufacturing costs are not as much as retail?

      Actually it's even worse than you're saying -- the analysis isn't about "manufacturing costs", it's about component costs (which is correctly described in the headline, and then incorrectly described immediately after in the summary). So, if you buy all the components, you've already spent half the cost before you start assembling them, testing them, shipping them, setting them up, packaging them, and shipping them again.

      Th

  • by EZ Erik (855609)
    Iphone has a higher markup percentage: http://www.crunchgear.com/2008/06/19/apple-only-spends-100-to-build-iphone-3g/ [crunchgear.com]
  • by stokessd (89903) on Wednesday April 22, 2009 @04:05PM (#27678341) Homepage

    For a lot of retail electronics, 10% of retail price is about the price of the raw parts. One half of the retail prices seems like pretty thin margins.

    I was assuming that the kindle is much like a polaroid camera, or inkjet printer where the cost of the hardware is subsidized or sold at effectively no profit, and all the money is made in the consumables (the books).

    Sheldon

    • Yeah, I didn't RTFA, but a lot of the early posts made it seem like they thought the parts should cost more. Quite the contrary, 50% - even if you include manufacturing costs - seems like a way to take a loss very easily. Most items have a 50% markup at the end stage of the chain, after all the devel, marketing, overhead, shipping, and production is included. Now, granted that the supply chain is short, and there will never (or nearly never) be a discount market for these, so the margin could be smaller and

      • by Dahamma (304068)

        Most items have a 50% markup at the end stage of the chain

        Remember, though, Amazon sells it direct on their web site, so it's a pretty short chain. If they sold through Best Buy, etc, they'd have to mark it up more to give the retailer, etc a profit, too.

    • by nicklott (533496)
      As someone with some experience in retail I can tell you that 50% margin would be considered extremely good for an electronic item at final retail. Normally the high street retailer will make 10-20% on these things and the internet discounters will be pushing 5%. There is just so much competition out there and people are very sensitive to price for electronics, however amazon has no competitors for the kindle, so they can pretty much charge what they want. (For comparison, clothing will normally make 50-80%
  • So... (Score:4, Insightful)

    by Xerolooper (1247258) on Wednesday April 22, 2009 @04:09PM (#27678409)
    they are selling it at a loss. A device like this is usually sold as a loss leader as they intend to make up the lost revenue in the sale of the consumables(in this case the ebooks).
  • I took the point to be that manufacturing costs of 50% of retail are fairly high. I suppose that when you are looking at a razor/razor blade marketing model that works out, but it seems quite a bit higher than other electronic gadgets.
    • This is not full manufacturing cost, this is outside material only. They probably barely break even (considering that there is no multi-level distribution chain adding more mark-ups in every step.
  • by Aphoxema (1088507) * on Wednesday April 22, 2009 @04:11PM (#27678437) Homepage Journal

    "... manufacturing cost is almost half as much as its retail price."

    Wow, they're actually selling it pretty cheap then.

    • by jonesy16 (595988)

      That's what I was thinking. In many retail businesses (clothing I know for sure), there is almost always a 100% markup over wholesale. Perform the same analysis on a Monster RCA cable and tell me what their margin is ...

  • There's clearly a lot more to the cost of a product than the raw materials. Look at, oh, any video game or application software.

  • What about costs that aren't inherent, such as defective units that have to be replaced for free, shipping costs on their end, R and D costs, that get transferred into cost, plus the fact that they have no real competitors to have a price war with. This isn't even including workers that will handle any of the various processes that the kindle touches from inception to shipping it out to consumers.
  • OK, so the components cost X and the total, assembled, transported to user, advertised, with retail markup version costs twice X. Seems totally normal to me. It's not like clothing, where the cost after complete assembly is 1/10th the cost at retail sale.
  • by escay (923320)
    you are getting a lifetime wireless connectivity with Sprint. I don't see this factored into their material cost. amazon (and analysts) have often stated that the cost of connectivity is overlooked when people complain about the Kindle being pricey.
  • Don't forget that CDMA network is not free. So, add to price of components one or two years of pre-paid data access. Which is probably cheap, but not free.

  • Apparently... (Score:4, Interesting)

    by brian0918 (638904) <brian0918NO@SPAMgmail.com> on Wednesday April 22, 2009 @04:30PM (#27678667)
    Apparently, the folks at iSuppli subscribe to the socialist notion that the men of ideas are of no importance. Obviously, if you just take all the parts and throw them in a box, they'll magically form a Kindle.

    This reminds me of a story from a WSJ article from 1974, about the nationalization of plants in Chile, quote in Ayn Rand's Philosophy: Who Needs It [50megs.com]:

    Among them was Dow Chemical Company, which owned a plastics plant in Chile. Bob G. Caldwell, Dow's director of operations for South America, came with a technical team to inspect the remains of their plant. "'What we found was unbelievable to us,' he recalls, 'The plant was still operable, but in another six months we wouldn't have had a plant at all. They never checked anything.' ....Worse yet, the highly inflammable chemicals handled at the plant were in imminent danger of blowing up. 'Safety went to pot,' Mr. Caldwell says. 'The fire-sprinkler system was disconnected and the valves taken away for some other use outside. Then they were smoking in the most dangerous areas. They told us, "You didn't have any fires while you were here before, so it must not be as dangerous as you said."'"

    • the socialist notion that the men of ideas are of no importanceFirst of all, stop reading Ayn Rand as it's obviously giving you very very strange ideas about socialism. Various implementations of socialism (i.e. highly authoritarian ones), sure - but that's true of

      Here's a fun fact for you:
      Denmark, Finland, Norway and Sweden are all very socialist countries. High taxes, high level of social security (free school, education, health care etc), and they're all very keen on getting people educated in college (i

    • Well, aparently being openly socialist means the preview button changed its name to "Submit". Let's try it again with proper formatting:

      the socialist notion that the men of ideas are of no importance

      First of all, stop reading Ayn Rand as it's obviously giving you very very strange ideas about socialism. Various implementations of socialism (i.e. highly authoritarian ones), sure. But not socialism as an idea. No more than being an American makes you a fat, gun toting, inbred redneck who's never been outside

      • by GryMor (88799)

        I could be wrong, but I don't think Finland, Sweeden, Denmark and Norway have nationalized all their industries, so, they aren't socialist in the sense that GP was using the term.

        • Re: (Score:3, Insightful)

          by Xtifr (1323)

          I could be wrong, but I don't think the US has clapped all of its workers in physical chains and forced them to work for no wages for their decadent overlords, so the US isn't a capitalist country in the sense that ol' Joe Stalin was using the word.

      • by brian0918 (638904)

        First of all, stop reading Ayn Rand as it's obviously giving you very very strange ideas about socialism.

        Ad hominem. Try again.

        Various implementations of socialism (i.e. highly authoritarian ones), sure. But not socialism as an idea.

        The only variation is in the degree to which that fundamental notion is evaded or accepted.

        Denmark, Finland, Norway and Sweden are all very socialist countries. High taxes, high level of social security (free school, education, health care etc), and they're all very keen on getting people educated in college (i.e. making men of ideas). They see their future as one that has interlectual companies outperforming regular industry.

        Pay lip service to intellectuals is not the same as giving them the freedoms they need to achieve their goals and values. Neither their good intentions (wanting successful nationalized companies) nor their ends (actually having successful nationalized companies) justify the means (nationalization through the violation of individual rights).

        They do believe a man with ideas are important in only

        • by Rycross (836649)

          Pay lip service to intellectuals is not the same as giving them the freedoms they need to achieve their goals and values. Neither their good intentions (wanting successful nationalized companies) nor their ends (actually having successful nationalized companies) justify the means (nationalization through the violation of individual rights).

          They do believe a man with ideas are important in only one sense - in the sense that they are able to leech off him.

          If that's the case, then why does research show that people in those countries have a relative economic mobility equal to or greater than those in the United States? [wikipedia.org] It would seem that the policies in the countries that the grandparent cited are affording their citizens more freedom to achieve their goals and values, if the data is any indication.

          • by brian0918 (638904)

            If that's the case, then why does research show that people in those countries have a relative economic mobility equal to or greater than those in the United States? It would seem that the policies in the countries that the grandparent cited are affording their citizens more freedom to achieve their goals and values, if the data is any indication.

            Have you read Watership Down [amazon.com]? Your comment reminds me of the rabbit farm, in which all the rabbits live happily and are well-fed, but occasionally have to give up one of their own to be slaughtered. The situations are equivalent in that the rights of certain individuals are being sacrificed to benefit everyone else. That the majority somehow fares better as a result is no justification for the means of their affluence. This is the sacrifice of the minority to the majority. For people to be truly free means

            • by Rycross (836649)

              I wasn't talking about whether it was justified, but the data does seem to indicate your position that social capitalism removes opportunity isn't supported.

              I actually have a question: do you support taxes or tariffs for the purpose of providing the military, police, and courts? If so, how can you justify violating my property rights in order to protect your property? Assuming you have a society that regards things like health care and education as human rights, how can you justify the former and not the

      • by kbielefe (606566)
        You're making a broad assumption that a graduate of a state-sponsored university is equivalent to a man of ideas, which isn't necessarily true even among the so-called elite schools. A central idea of socialism is that everyone is entitled to things like college educations, whether they are men of ideas or not. It doesn't surprise me that a socialist country produces more of something it gives away for free. It's meaningless. All it does is make it harder for the true men of ideas to stand out.

        What woul

    • by Eil (82413)

      Hi.

      I saw that you posted the same comment in the gearlog article, but I don't have an account there. I have an account here, however, so I'd like to clarify the point upon which all your shouting seems to rest:

      Despite how you'd like to paint them, iSuppli is just a market research firm. They take things apart, document what's inside, and estimate the raw cost of the components. In particular, they made NO judgements about how much it cost Amazon's employees to engineer it, write the software, or market it.

      • by brian0918 (638904)
        Ahh sure, the ever-objective folks at iSuppli certainly have no interest whatsoever in their work, and endeavor to choose it at random out of a hat.
        • by ihavnoid (749312)

          Although not mentioned on the article, I am damn sure that the guys on iSuppli will be thinking something like 'OMG how can they do business with such a high material cost?'. 50% looks tooooooo high to me, and I am damn sure that they are selling it for a loss.

          Believe me, iSuppli did many [gizmodo.com], many [arstechnica.com], and many [engadget.com] work something like this before, and their purpose is to understand how those companies operate.

          It's no secret that material cost is only a tiny fraction of the retail price on this kind of high-tech busin

  • by jollyreaper (513215) on Wednesday April 22, 2009 @04:35PM (#27678751)

    This is usually the way of things. Wanna hazard a guess as to how much food costs at your favorite restaurant? I can guarantee your $12 entree didn't cost even half that much for them at the wholesaler. But the gross on that ain't anywhere near the net. If you want to talk about a contemptible outrage, you're talking about BS like components getting marked up 4x at the big box retailers. Yeah, you get the printer for cost and the $2 data cable for $20.

  • by g0at (135364) <ben@zygo[ ]ca ['at.' in gap]> on Wednesday April 22, 2009 @04:36PM (#27678767) Homepage Journal

    Seriously, why does this company keep getting its name into headlines? Who gives a shit what they feel a bunch of components might cost? Come on, shills. This is a do-nothing company that pisses its pants for publicity, and places like the Mac rumors sites and Slashdot lap it up and parrot their squawkings.

    It requires no more than a grade-school education to understand that the price to design, manufature, market, support and service a product is greater than the sum of the wholesale cost of its physical components.

    Enough.

    Take this stupid company with their silly name out back, shoot it, and don't mention it again.

  • Okay, so you have the raw material costs. What about:

    * Maintenance (patches, upgrades, etc.)
    * salaries - assembly, support, marketing, sales, quality assurance, and so forth
    * Surplus for future R&D
    * Surplus for warranty service
    * Patent royalties (software patents are evil)
    * affiliates' tiny slice of the pie

  • Welcome to R&D-Ain't-Free-Istan, where R&D ain't free and companies need to recup their costs. Wait a while, the price will drop.

  • but no retail sales. ideally at every level of the distribution chain, you would like to get at least 50% to be able to maintain and grow the business.

    if you're not keeping your margin, you are cutting either the future out, or starving the present.

    so the Kindle is good ROI and that's why Amazon likes it and is lining up all the product they can to read with it.

    if you sell a $30,000 product for $5000 less than the cost of making it, you are GM. this is not supposed to be a good thing.

  • It's a loss-leader. They sell it for a minimal (or zero) profit (don't forget manufacturing, R&D, support, etc.) and make money on the books they sell for it. They probably also make money on the publicity, when people realize how trendy Amazon are and buy even more books.

    There is an element of "halo product" about Kindle as well. It generates interest and hype far beyond what just selling a little box with a screen will create.

    Neither of these are new concepts.

    ...laura

  • Some of the remaining price certainly has to go to pay for the Whispernet connection. Remember that there is a significant amount of free stuff you can d/l to your Kindle.
  • The average PDA and I daresay some phones have more computing power than a Kindle. I very much doubt the display adds much to the cost of the device.

    Its price might be forgivable if it weren't DRM'd up the wazoo, wasn't tied to a single provider and could display common non-DRM'd book formats. But it doesn't. Amazon are trying to have their cake and eat it too. The Sony Reader perfect either but even that's cheaper than a Kindle and has fairly reasonable format support too.

Cobol programmers are down in the dumps.

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