Amazon’s Kindle 2 e-book reader costs $185.49 to build, according to a report from research firm iSuppli summarized by BusinessWeek. The biggest cost: The e-ink display, which could cost about $60, or more than 40% of the Kindle’s total cost.
Amazon sells the Kindle for $359, meaning that materials make up about 50% of its retail price. (Plus manufacturing, packaging, marketing, shipping, etc.) That suggests that Amazon could still significantly cut the Kindle 2’s price tag around the holidays — perhaps to $250 — to break even (or make a small profit) and sell a ton more e-books.
Remember that Amazon has a different goal than Apple (AAPL) or other gadget makers here: While Apple runs its app store near break-even to sell more iPhones and iPod touches, Amazon’s long-term profits are going to come from e-book sales. (And newspapers, magazines, blog subscriptions, etc.) So further cutting Kindle prices to build a bigger install base — especially if more competitors show up this year — could be a smart move.