Amazon's Kindle Fire Shows The Tech World That It's Not All That Important To Profit From Device Sales

BIILike with so much else Amazon does, profit comes second to bringing in users. That's especially true when it comes to the Kindle Fire. The tablet will never be the most popular one out there, and Amazon has admitted that they sell the devices at cost. But that's not really the point.

Instead, Amazon generates revenue from Kindle Fire users by encouraging them to download from Amazon's vast digital library of apps and media, view ads, access related Internet services like e-commerce, and join its Amazon Prime all-in-one loyalty service. This is an important model that the tech industry should be paying attention to: Amazon's Kindle Fire shows how you can deeply discount your hardware, lag behind competitors in terms of market share, and win in revenue terms. There are signs Google-owned Motorola may be moving toward a similar strategy with its inexpensive $179 Moto G smartphone.

In the future, most hardware may intentionally be sold at cost or for a loss in order to encourage uptake of online services, advertising, and commerce. In a recent report from BI Intelligence, we dig into available data on Amazon's unique mobile strategy. Amazon has achieved respectable results in terms of app downloads and app revenue on Kindle Fires, and yet is often left out of mobile platform analyses that focus on Apple, Google, and Microsoft.

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Here are some of the key numbers behind Amazon's Kindle Fire ecosystem:

• The Kindle has not managed to achieve real scale globally: The Kindle line, including e-readers, took only a 2% share of global tablet shipments in the third quarter of this year, according to BI Intelligence estimates.
• But a massive, global consumer base isn't everything. The Kindle ecosystem will account for 11% of Amazon's total revenues this year, according to Morgan Stanley, including revenues from digital content streaming and downloading, app purchases, and advertising revenues.
• Amazon Prime subscriptions are another key source of Amazon revenue, and Kindle Fires encourage subscriptions because subscribers receive free unlimited video streaming and e-book borrowing. Morningstar estimates that there will be more than 10 million total Amazon Prime subscribers this year.
• The Amazon Appstore is also generating strong revenue results. Popular Kindle Fire apps are generating 59 cents of revenue for every dollar earned by top apps in the Google Play store, according to a Distimo study. Download volumes are about half those on Google Play for top app titles - impressive considering how many more Android devices are in circulation.
• Meanwhile, Amazon's advertising programs on the Kindle Fire also generate nearly $200 million in ad revenue for the company, according to projections.
• The strategy seems to be working. Amazon's platform is in a major global expansion phase: Earlier this year, Amazon began selling high-end Kindle Fire models in 170 countries and brought the Amazon Appstore online in 200 countries.

The report is full of charts and data that can be easily downloaded and put to use.

In full, the report:

• Contextualizes how Kindles stack up in terms of global and U.S. market share
• Outlines the various revenue sources Amazon has developed around the Kindle Fire line
• Compares Amazon's Appstore to the Google Play store in terms of revenue
• Examines the positive feedback loop between Amazon Kindle Fire usage and Amazon Prime subscriptions
• Looks at how Amazon is expanding internationally to continue propelling Amazon Kindle Fire uptake and thus creating new opportunities to monetize users

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