Wednesday, April 22, 2009

Kindle's gross margins

AP reports a story on the iSuppli cost of goods breakdown on the Kindle: $185.49 parts and manufacturing for a $359 retail price. The largest amounts are $60 for the display and $39.50 for the EV-DO modem for the Sprint network. That’s a 48% gross margin for a product sold by Amazon as the sole manufacturer, distributor and retailer.

By comparison, it estimates the iPhone 3G at $174.33 for a retail price of $599. Apple does distribute through channels but the 71% gross margin covers a lot distribution margin.

One thing that iSuppli would not cover is the cost of using the Sprint network. Does Amazon pay Sprint upfront? Or do they allocate a proportion of every download sale for bandwidth charges?

The AP story also reported an estimate of 500,000 Kindles sold in 2008. That’s perhaps good for an e-book reader, but it suggests the Kindle is far from crossing the chasm — a good reason why Amazon decided to make an iPhone reader app for Kindle content.

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