Great article at ZDNET about Amazon's math for a subsidized tablet

For many companies, subsidizing the Kindle Tablet wouldn’t make much sense, but Amazon has unique assets. Here’s a look at the numbers behind the Kindle Fire.

  • $250: Cost to manufacture the Kindle Fire, according to Piper Jaffray estimates.
  • $199: Price of Kindle Fire.
  • $50: Estimated Amazon loss, according to Piper Jaffray.
  • $79: Cost of Amazon Prime subscription.
  • $28: Net gain on a Kindle Fire assuming every tablet buyer becomes an Amazon Prime subscriber for one year. Conservative estimate since Prime subscribers spend more.
  • 10 to 20 percent: Potential earnings downside if Kindle Fire is a huge hit, according to Piper Jaffray. Caveat: Prime subscriptions could drive physical good sales.
  • 160 basis points: Estimated operating margin decline in the fourth quarter based on increased media and device expenses, according to Barclays Capital analyst Ben Reitzes.
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