When Amazon unveiled the $199 tablet computer Kindle Fire, people began speculating that a rival product to Apple's iPad, whose cheapest version is $499, has finally arrived. Indeed, at $300 or 60% cheaper, Kindle Fire, which may lack some of iPad's functionaries, seem to be somewhat of a bargain. News came out today that Amazon might actually be losing money for each unit of Kindle Fire sold. Although estimates vary, the estimated cost put into each unit of Kindle Fire is about $210. Amazon would need to sell $10 of other goods, such as music or apps, just to break even.
Predatory pricing may be the strategy Amazon is going after. By intentionally charging a lower price, the firm hopes to entice customers. When the item is sold, also carried along is the brand name of the product and other related product. Amazon already has a huge presence in the market, and has a huge inventory of items ready to be sold, that may be compliment products to the tablet. By tying the goods together, Amazon may be hoping that the lower pricing on Kindle Fire may draw customers to buy more of its other goods. Indeed, compared to other Android competitors, "the real benefit for Amazon in entering the tablet space is the advantage of a direct, established, sales model on Amazon.com."
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