Amazon Needs Only $3 of Monthly Margin from Apps to Achieve 20% Profit from Kindle Fire Experiment, According to ABI Research

  Amazon Needs Only $3 of Monthly Margin from Apps to Achieve 20% Profit from
  Kindle Fire Experiment, According to ABI Research

Business Wire

LONDON -- January 16, 2013

Kindle Fire, which Amazon is widely reported to be sold at cost or below the
margin, has been one of the most intensely followed technology product stories
over the past year. A new study from ABI Research concludes that the
cross-subsidized device model that Amazon uses is a viable strategy. According
to senior analyst Aapo Markkanen’s calculations, the firm would need, on
average, an incremental profit of about $3 in each month of a tablet’s
lifespan to achieve an overall profit margin of 20%.

Markkanen comments, “Considering the probable margins of app and content
sales, our research shows that Kindle Fire is a credible proposition. 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 favor. Its future devices are likely to require less cross-subsidy
than the ones we’ve seen so far.”

Amazon’s mobile strategy is distinctly two-pronged, since besides its own
devices the company also offers a popular portfolio of apps running on all
major OSes. ABI Research estimates that altogether the Kindle, Amazon Mobile,
Cloud Drive, and Price Check apps have seen over 180 million downloads. The
already established presence on mobile devices begs the question whether such
a platform-agnostic approach would actually serve Amazon’s interests better
than investment in a competing ecosystem.

Markkanen doesn’t think so, saying, “Kindle Fire may look like an aggressive
push into a whole new market, but it’s more of a defensive play, born out of
necessity. 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.”

These findings are from ABI Research’s Mobile Application Markets
Research Service. The service focuses on the distribution and the economics of
mobile apps, providing data-driven insights on areas such as download volumes,
revenues and business models, as well as trends within different applications

ABI Research provides in-depth analysis and quantitative forecasting of trends
in global connectivity and other emerging technologies. From offices in North
America, Europe and Asia, ABI Research’s worldwide team of experts advises
thousands of decision makers through 70+ research and advisory services. Est.
1990. For more information visit, or call +1.516.624.2500.


ABI Research
Christine Gallen, +1-516-624-2542
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