Here's What The Kindle Fire Ecosystem Tells Us About How Amazon Makes Money From Digital Media

BIIWith the launch of Fire TV, Amazon - the ostensible e-commerce company - is moving even deeper into the media business.

Amazon actually already makes a good deal of revenue from its digital media business, which until this point has been largely supported by Kindle Fire users. Now, Fire TV users will also help boost digital media sales, as well as encourage Amazon Prime subscriptions.

With the Fire TV, Amazon is expanding the scope of its ecosystem and increasingly looking to digital media as a core service.

In a recent report from BI Intelligence, we took a close look at the Kindle Fire ecosystem to understand how Amazon uses digital media to earn revenue off of hardware that the company sells at cost.

Here are some of the key takeaways on the 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 last year, according to BI Intelligence estimates. Due to competition from low-priced Android tablets, Kindle isn't likely to be more than a slice of the tablet market.
• But a massive, global consumer base isn't everything. The Kindle ecosystem accounted for 11% of Amazon's total revenues last 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 were more than 10 million total Amazon Prime subscribers in 2012.
• 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.
• Amazon's platform is in a major global expansion phase: Last year, Amazon began selling high-end Kindle Fire models in 170 countries and brought the Amazon Appstore online in 200 countries.
• Meanwhile, Amazon's advertising programs on the Kindle Fire also generate nearly $200 million in ad revenue for the company, according to projections.

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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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