Yes, Amazon’s Kindle Fire strategy is working

Analysts at ABI Research believe Amazon’s cross-subsidized device paradigm offers a viable strategy for the company’s tablet lineup.

According to ABI senior analyst Aapo Markkanen, the Seattle-based corporation requires on average, an incremental profit of about $3 in each month of a tablet’s lifespan to achieve an overall profit margin of 20%.

“Considering the probable margins of app and content sales, our research shows that Kindle Fire is a credible proposition,” Markkanen explained in an industry note sent to TG Daily.

“We expect that there will be a certain level of ‘innovation plateauing’ in mobile hardware taking place over the next five years, and that would certainly work in Amazon’s favor. Its future devices are likely to require less cross-subsidy than the ones we’ve seen so far.”

Amazon’s mobile strategy is distinctly two-pronged, says the analyst, especially since the company also offers a popular portfolio of apps running on all major OSes, in addition to its own eReader and tablet lineups.

“Altogether the Kindle, Amazon Mobile, Cloud Drive, and Price Check apps have seen over 180 million downloads,” Markkanen confirmed.

“The already established presence on mobile devices begs the question whether such a platform-agnostic approach would actually serve Amazon’s interests better than investment in a competing ecosystem.”

However, Markkanen doesn’t believe this is the case, even if the Kindle Fire may seem like somewhat of an aggressive push into an entirely new market.

“It’s [actually] more of a defensive play, born out of necessity. If Amazon bet its post-PC future only on the web and apps, it would be dangerously exposed to the likes of Apple and Google. Whoever controls the platform has a more frictionless relationship with the user, and that relationship can become real poison for any third party that relies on the same platform for its own business,” he added.