Talking tech since 2003

A recent analysis of survey data by research firm Consumer Intelligence Research Partners shows some interesting data that explains why Amazon is willing to sell its Kindle line of products at-cost.  First, the research firm estimates that 20.5 million Kindles — e-readers and Kindle Fire tablets combined — are currently in use in the U.S., and that 40 percent of Amazon.com’s customers own one of the devices.  But the really interesting tidbit of the report is the difference of spending data between Kindle owners and non-Kindle owners.

In a survey of 300 Amazon.com customers over the three months leading up to Nov. 15 the company found that people who own Kindles spend more on Amazon than those who don’t.  It’s not just that they spend more on Amazon though — it’s that they spend significantly more.

Based on its research and analysis, CIRP estimates that Kindle owners spend $1,233 per year on Amazon compared to $790 per year for Amazon shoppers who don’t own one of the company’s e-readers or tablets.  Kindle owners aren’t necessarily buying more in one fell swoop, but are buying more frequently.  That makes sense, a Kindle is like a portal to Amazon.com — the ultimate online store, if you’re constantly bombarded with stuff to buy, you’ll likely end up buying more of it.

Curious myself, I decided to breakdown the numbers a bit more.  I took each entry level Kindle product (Kindle, Kindle Paperwhite, Kindle DX, Kindle Fire HD, Kindle Fire HDX 7″, and Kindle Fire HDX 8.9″) and compared it to the difference in spending between the two types of customers (Kindle and non-Kindle) to see just how much money Amazon actually makes off these tablets and e-readers.

Here’s how this breakdown works: Figure the difference in spending ($1,233 – $790 = $443) then needs to have the cost of the device subtracted from it to get the company’s profit margin per device sold (because remember they sell these tablets at-cost).

  • Kindle (retails for $69) — Amazon profit: $374
  • Kindle Paperwhite (retails for $119) — Amazon profit: $324
  • Kindle DX (retails for $199) — Amazon profit: $244
  • Kindle Fire HD (retails for $139) — Amazon profit: $304
  • Kindle Fire HD 8.9 (retails for $269) — Amazon profit: $174
  • Kindle Fire HDX (retails for $229) — Amazon profit: $214
  • Kindle Fire HDX 8.9 (retails for $379) — Amazon profit: $64

That’s not bad at all.  Apple’s iPad Air costs $274 to manufacture and the company starts selling it for $499, meaning they net a hefty profit of $225 for their lowest-end iPad Air. If Amazon can continue this trend and perhaps even increase the dollar spend on Amazon.com from Kindle owners I’m sure Jeff Bezos will be a very happy man (though he probably is already).  I’d also imagine that people who buy the higher-end Amazon tablets likely spend a bit more than the $1,233 per year, meaning those more expensive tablets probably aren’t really in the red.


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