Exclusive: Amazon's $79 Kindle Costs $84 to Make
NEW YORK (MainStreet) — Amazon's new $79 Kindle e-reader isn't just undercutting all competitors on price, it's also undercutting Amazon. — The soon-to-be-released e-reader costs $84.25 to manufacture, according to a new report …
Context & Ripple Effects
The $79 Kindle is the endpoint of a year-long price slide: Amazon started 2011 selling an ad-supported Kindle at $114 and by June analysts were projecting Kindles would reach roughly ten percent of Amazon's business within a year (Kindles Getting Cheaper, and Huge). The new report puts manufacturing cost at $84.25 against a $79 shelf price, confirming what the pricing arc implied — Amazon is no longer trying to make money on the device itself.
Distribution matters here too: the lineup announced this week ($79 Kindle, $99 Touch, $149 Touch 3G, $199 Fire) is confirmed for Best Buy, Target and Walmart, putting a below-cost device on mass-retail shelves alongside rumored Fire order volumes above five million units for 2011.
First-order effects
- Every $79 Kindle sold books a small confirmed loss for Amazon, making the e-reader an explicit customer-acquisition cost rather than a product line — and Barnes & Noble and Sony now face a price floor set by a seller who accepts losing money per unit.
- Best Buy, Target and Walmart gain a sub-$80 traffic driver for holiday shelves, while taking margin risk on a device whose economics only work inside Amazon's ecosystem.
Second-order effects
- Competitors are forced to choose between matching a below-cost price they cannot sustain or differentiating on features like touch and ecosystem — the same squeeze the 2008 undercuts on Kindle and Sony Reader prices foreshadowed at the low end.
- Revenue pressure migrates to ebooks and the Kindle Store: with hardware margins gone, Amazon's return depends on attach rates of content and general merchandise purchases by Kindle owners, which is exactly the bet behind scaling the Fire alongside it.
Third-order effects
- If the pattern holds, dedicated e-readers become fully commoditized loss leaders and the durable competition moves to content libraries, advertising (already present in the $79 unit) and cross-selling into Amazon's retail catalog — a structure where device makers without a commerce engine cannot compete on price.
- Teardown-driven reporting on build cost versus shelf price is becoming the standard lens for evaluating consumer devices, shifting the public debate from specs to business-model sustainability.
The trend: Consumer electronics pricing is decoupling from manufacturing cost as hardware becomes a subsidized entry point into content and commerce ecosystems, with Amazon's Kindle line the clearest 2011 example.