How Profitable are the iPad and Kindle?

by Idris Mootee

How much money are Apple and Amazon making from selling the iPad and the Kindle?

Get ready for the iPad to come to an Apple store near you, and for iTunes TV show downloads. Apple will be offering US TV shows for $1 each, as reported by the Financial Times. This coincides with the scheduled release of the iPad sometime in April in an attempt to boost adoption and pull sales through the channel. TV episodes are normally $1.99 for standard-definition and $2.99 for high-definition through iTunes. There was talk before the iPad launch that Apple might at last introduce an iTunes TV show subscription service, but it never happened. I am sure that is still on the table, but there are no further details about when this could come together.

Some wonder how much money Apple can make with the iPad. Obviously the higher end models are usually more profitable for Apple, and the iPad is no exception. I've done some quick and dirty research with OEM suppliers and whipped up some estimates. The high-end iPad model with 3G and 64 GB of storage will retail at $829 and produce a profit of $455 for Apple (and retailers), while the low-end iPad model with 16GB of storage (and no 3G) will retail at $499 and bring a profit of $213. My assumptions for marketing and customer support costs total $15. I have not included in the calculations any volume discounts that Apple might grant to corporate or educational buyers.



I have yet to confirm the components configuration but am using industry's current suppliers' prices. These costs will come down when volume increases, and memory prices fluctuate. The display is the most expensive component, followed by the NAND flash memory. If you drop your iPad, I am guessing the replacement cost would be $250-$270, although the net cost is $76 excluding labor. I've also included a quick comparison with the Kindle DX, which is not an apple-to-apple comparison, and is just there for reference. Kindle doesn't have many of the expensive components that the iPad has, but is an elegantly designed book reader. Remember the basic rule of design? Make sure you do at least one thing really, really good. Kindle makes the downloading experience so easy. Anywhere in the world, your 3G can work to download books in the background.

All cost calculations here are based on our estimates only, not sources from Apple or Amazon and no one has confirmed if these numbers are close or off. I think they are close.

Considering the Kindle DX selling for $489 produces a profit of $297. There are costs for some free content not included in the Kindle DX costs. There will likely be many iPad clones in the market selling in the $180-$250 range. The margin for iPad clones will be as thin as $30-$40, but you can't really compare the iPad with those poor cousins. Let's see what the iPad's net contribution to Apple will be by the end of the year.


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Idris Mootee is the CEO of idea couture, a strategic innovation and experience design firm. He is the author of four books, tens of published articles, and a frequent speaker at business conferences and executive retreats.