Amazon May Miss Q4 Estimates, Despite Selling More Than One Million Kindles a Week
Since its introduction 13 weeks ago, the Kindle Fire has become the best-selling, most-gifted and most-wished-for product on Amazon. — But that could be a problem. — The device sells for about the same amount …
Context & Ripple Effects
The Kindle Fire has been on a straight ramp since launch: orders kept climbing through October, Amazon raised its production orders in November, and by mid-December the company was confirming sales above one million Kindles a week with demand still accelerating. Thirteen weeks in, the Fire is Amazon's best-selling, most-gifted and most-wished-for product.
The new wrinkle is arithmetic, not demand: the Fire reportedly sells for roughly what it costs to make, so the very success that lifted volumes may push Amazon below Wall Street's Q4 estimates — a rumored miss, not a confirmed one. Amazon's own counter-framing, relayed in syndicated coverage, is that it moved over four million Kindle devices this month and saw e-book gifting jump 175 percent, pointing to where it expects the money to come from.
First-order effects
- Amazon heads into its Q4 report with record device volume but near-zero hardware margin on the Fire, so analysts' estimate misses or beats will hinge on how much content and commerce revenue the installed base is already generating.
- Barnes & Noble's Nook Tablet, which competes at a similar price point against the Fire's IPS screen (recently compared head-to-head with the iPad 2's), now faces a rival willing to sell hardware at cost through the holiday quarter.
Second-order effects
- If the Fire's economics hold, rival tablet makers without a content storefront are forced into the same sub-margin pricing or cede the low end, pushing differentiation toward ecosystems rather than devices.
- Amazon's 175 percent surge in e-book gifting gives it evidence for the attach-rate pitch to publishers and developers: buy the customer at the hardware line, monetize at the content line.
Third-order effects
- The tablet market is splitting into two durable business models — Apple's margin-on-hardware versus Amazon's margin-on-content-and-commerce — and every new entrant must pick a side before pricing its first device.
- Investor metrics for consumer hardware shift accordingly: unit share stops being the scorecard, and quarterly results get read for digital-content revenue per device instead.
The trend: Consumer tablets are turning from hardware-margin products into loss leaders for content and commerce ecosystems, with Amazon's Kindle Fire as the template case.