Amazon sells latest Kindle at a loss

Amazon is so keen to get its latest-generation Kindle eBook reader out there that it's selling the device at a loss. Priced at $79, Amazon is taking a hit of at least $5.25 on each unit, since it costs $84.25 to manufacture.

The breakdown of the internal cost of components was put together by market research firm iSuppli, which revealed its data exclusively to Mainstreet. It concluded that the total cost of just the materials needed to make a Kindle, was just under $79. The manufacturing process is thought to cost $5.66.

But even this estimate doesn't provide a full picture of Amazon's loss-leader. It doesn't take into consideration costs incurred after the manufacturing process, including transport of the finished product to its intended sale point, as well as any licensing agreements Amazon might have for some of the hardware.

Of course, it isn't that Amazon has got its sums wrong - the below-cost pricing is completely intentional. Rob Enderle of analyst firm Enderle Group explains that although Amazon makes a loss on the hardware, the deals the book seller has struck with advertisers allows it to recoup some of the costs.

Customers are only able to purchase the $79 variant of the Kindle if they agree to adverts from third parties being displayed while they use it. To buy an advert free version, consumers need to shell out around $20 more.

In addition, getting an Amazon eBook reader into the hands of customers locks them into buying books from the online store, increasing revenue in the long run.

It appears the e-tailer is applying a similar logic to its Kindle Fire tablet. With a tag of $199 on release day, Amazon is estimated to be making a loss of just over $10 according to another teardown by iSuppli.