Tech analyst Tim Bajarin claims that Amazon will be selling its upcoming tablet for less then it costs to make. The company plans to adhere to its common business practice by undercutting the competition and making long-term revenue.
Tim Bajarin wrote a piece last week in PC WORLD where he mentioned the cost to develop and manufacture the tablet would be more than what the company would sell it for. The company would in-fact take a loss on the hardware but make up the revenue via its services. “By my guestimates, Amazon would make back that lost $51 within six months and reap a profit of anywhere from 10 to 30 percent on the tablet over the last 18 months of the device’s accounting period,” wrote Bajarin.
Amazon’s practice of taking a loss to make up in longer gain financial gains to eliminate its competition has been the company’s mandate from day one. Its entire ebook business was substantiated by charging less then its competition and dominating the market. This prompted many publishers to adopt the agency method of setting prices. This prevented Amazon from setting its own prices and allowed the publishers to do it instead. This was done in the spirit of fostering more competition and allowing for more stores to be competitive. Many tablet companies would be hard-pressed to take a loss on the hardware because they do not own their content distribution channels.
Speaking of content, Amazon has been focused on a string of new projects and developments that will find its way into the new tablet computers they are developing. They have their Cloud Music Locker, Android App Store, Textbook Rental System, Cloud Reader, Music Store, Audio books, and the massive Kindle eBook Library. Not to mention you can lend and borrow the books to your friends and have a strong social media element to everything you do within the system. The company is far beyond others and poised to integrate its entire content distribution system into a tablet.
The tablet sphere is very competitive and is currently dominated by the Apple iPad. Many companies are slashing prices on their devices just to make back their money.
The upcoming Amazon tablet, in order to be successful in the marketplace, has to cost less then the Barnes and Noble Nook Color in order to stay competitive.