Amazon loses $3 on every Kindle Fire

The teardown experts at market research company IHS iSuppli have taken their tools to the hot new Kindle Fire tablet and found that Amazon is definitely selling the devices at a loss. The Fire, which retails for $199, apparently costs near $202 — $201.70 to be exact — to make.

That’s no surprise, since the company already loses money on its Kindle e-reader tablets (especially now that they start at $79), making its profit from the media and other goods that users buy through the devices. The Kindle Fire is particularly good for this, as it comes with a free month of membership to Amazon’s Prime service, which normally costs $79 per year. Amazon has a good chance of getting a lot of new subscribers hooked on its on-demand video, limited lending library and shipping discounts through the tablet.

IHS’s senior director for teardowns, Andrew Rassweller, compared this business model to wireless carriers who subsidize the cost of phones in order to get customers to pay them regularly for phone service.

Related stories:

Kindle Fire in the hands of an Amazonian

Nook Tablet, Amazon Kindle Fire ‘mini-tablets’ will shake up market

Report: After Kindle Fire, is Amazon working on a phone?

Hayley Tsukayama covers consumer technology for The Washington Post.

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