Kindle, Amazon’s latest e-reader is so cheap that most people are not thinking twice before ordering one. At $79 it is the cheapest e-reader out there in addition it is also lighter, faster and smaller than its previous model which was far more expensive.
Analyst are finding the price so hard to believe, that one, iSupply did a complete teardown of the Kindle to determine the cost of production and to see if Amazon is actually taking a loss on every Kindle. As per their finding, $79 Kindle costs Amazon $84.25 to make, which means Amazon is taking a loss of $5.25 with each unit sold.
While it seems like Amazon is intentionally making a loss but the truth if far from that. Amazon is making tons of money by selling ads on the Kindle. The new Kindle comes with sponsored deals and ads thus subsidizing the cost of the device for consumers. The ads display on Kindle’s screensaver and on the bottom of the home screen—they don’t interrupt reading. Amazon makes recurring revenue on every device sold way into the future from the companies advertising on the device to promote their products or services.
Amazon’s clever play on pricing provides an excellent case for how ventures targeting Bottom of the Pyramid segment can make quality products available at a cheap price. Ad-supported model can prove to be a powerful approach in delivering high value products/services at an extremely affordable rate. Imagine a low-end cellphone which grants you more free talktime every time you listen to an ad or think of Pepsi advertising helping lower the cost of a small refrigerator for rural homes. If you know of any examples from the field or if you could think up more ideas on ad-supported products, we would love to hear from you, in the comments below.