TechCrunch reported Wednesday that Amazon.com, Inc. (NASDAQ:AMZN) was planning to sell a 7-inch Kindle Fire HD for $99 sometime this year. With Amazon taking such an aggressive stance on tablet pricing, what does it mean for the online retailer and its competitors?
Amazon’s tablet strategy has been built around offering hardware at-cost
Since Amazon.com, Inc. (NASDAQ:AMZN) rolled out the original Kindle Fire back in 2011, the company has pursued a strategy of offering its hardware at-cost. Amazon never gave the official figures for how much it spends on building the Kindle Fire, but third-party teardowns have put the cost of parts right around the price Amazon ultimately charges.
Inline with that sort of strategy, Amazon has consistently lowered the price it charges for its hardware over time. Last fall, when the company debuted the Kindle Fire HD, it lowered the price of the original Kindle Fire by $40. And earlier in March, Amazon cut the price of its 8.9-inch Kindle fire by $30-100 depending on the model.
A $99 Kindle Fire would be the most aggressive price cut yet. In fact, Amazon.com, Inc. (NASDAQ:AMZN) still charges $120 for its Kindle Paperwhite — a pure e-reader that lacks the app capabilities of the Kindle Fire.
Amazon has been able to sell its Kindles at-cost because the company follows a razorblade pricing model. Amazon.com, Inc. (NASDAQ:AMZN) believes that customers who purchase its Kindle Fires will be more likely to buy the company’s digital content: its ebooks, movies, and music. The profit from the sale of this media more than make up for selling the devices at-cost.
Such a cheap Kindle Fire could pressure other Android makers
Despite introducing a $330 iPad Mini, Apple Inc. (NASDAQ:AAPL) continues to charge significantly higher prices for its tablets when compared to Amazon’s offerings. And despite these higher price points, Apple continues to maintain a dominant market position in the tablet space, with over 40% market share.
Instead of challenging Apple, a cheaper Kindle Fire seems more likely to put pressure on makers of cheap Android tablets.
A new entrant into the space is Hewlett-Packard Company (NYSE:HPQ). HP is set to ship a 7-inch Android tablet called the Slate 7 in April. At $169, the Slate 7 will be one of the cheapest Android tablets on the market — $30 less than Asus’ flagship Nexus 7.