26 Comments

Summary:

Amazon is known for cutting its customers a deal on Kindle hardware, making its money back on services. The new LTE Fire, though, appears to be an exception. Adding 4G to your Kindle costs $130 plus a non-negotiable storage upgrade. Apparently 4G is for suckers.

Kindle Fire HD with X-Ray

By now you’ve probably heard about Amazon’s revolutionary new mobile data pricing plans for the Kindle Fire HD 4G. Amazon is charging just $50 for an annual LTE subscription on AT&T’s for 250 MB a month, plus throwing 20 GB of cloud storage into the mix. Compared to the pricey monthly data subscriptions most carriers charge for tablet plans, the plan seems quite the steal if you only want basic connectivity. But be warned: Amazon seems to be making that money back by other means.

You’ll notice there’s a $200 price differential between the baseline LTE Fire HD and the Wi-Fi-only version, which is an unheard of mark-up. To be fair, the low-tier LTE tablet comes with an automatic 16 GB storage upgrade, so the price difference between a 32 GB LTE device and a 32 GB Wi-Fi device is $130, which happens to be the same premium Apple charges for 4G connectivity on its iPads.

The thing is that Apple is known for spec-inflation. Amazon has the opposite reputation. As my colleague Kevin Tofel points out, Amazon has always taken the attitude that it makes its money on services and cuts its customers a deal on hardware. Amazon CEO Jeff Bezos made the same point at the new Fire’s unveiling, claiming it makes its money when customers use its products, rather then when they buy them.

Well, apparently its LTE tablet is the exception. Amazon is playing the same pricing game as Apple, grossly overcharging customers for upgrades and additional features. If it really cost $130 to add LTE to a device than there would be no such thing as $150 LTE smartphone, yet MetroPCS somehow manages to sell two such devices without any subsidy.

Amazon is taking the same attitude of many of its tablet-making peers: 4G is for suckers.

So why the big mark-up? Amazon appears to be embedding a very expensive cellular modem into the Fire. It hasn’t revealed detailed specs just yet, but it claims to have engineered a modem that supports 10 bands, which includes multiple LTE frequencies as well as global HSPA and 2G airwaves.

Cramming that many radios and that many bands into a device isn’t cheap and most likely involves using new active antenna technology developed by companies like Ethertronics. But each new band requires its own power amplifiers, filters and other components, yet Amazon has packed them into a modem only 2.2 millimeters thick. It’s a hell of an engineering feat, and Amazon most likely did this to save it supply chain headaches. Rather than design separate tablets for different regions of the world or different carriers, it can ship the same device globally.

I doubt such a modem costs $130 to manufacture, but even if it does, Amazon could have saved a lot of cost by scaling down its radio ambitions. Instead it chose to make a universal device and pass the expense along to its customers.

Maybe when it comes to tablets, 4G is an unnecessary luxury – those who want it can afford to pay for it. But if tablet makers keep treating their customers like chumps, mobile broadband will always remain an overpriced luxury.

Image courtesy of Mind of the Geek

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  1. Disagree with premise, the bait and switch comment and if you cite any other product with close to the same features and price you should. If not I consider your article a cry for attention.

  2. Not to mention that’s not what a bait and switch means.

  3. …this column, at best, is a stretch…and needs to be rethought.

    1. I for one completely agree. 4G enabled tablets have been an excuse for unnecessary and unreasonable price increases based solely on the hype of 4G and that more customers than not are uninformed of alternative options that could save them a lot of money.

      Great article. Couldn’t have written it better myself.

      Perhaps more journalists like this who bring these glaring issues to the forefront will keep customers more informed and manufacturers from preying on them with the flashy new terms half of them probably don’t understand.

      The more you know … Reading and research is a dying practice in the world, and that makes me sad.

  4. Please read the FTC’s guide on what “bait and switch” means before you continue in this vein.
    ftc.gov/bcp/guides/baitads-gd.htm

    Also, did it ever occur to you that AT&T might get a cut of that $200 difference?

  5. One of the worst articles on technology I have read in a while. Kevin is striving to be the next Don Reisinger.

  6. This article is flawed. The point you make is valid if all they were delivering was a tablet and you get your own data plan. But Amazon is offering you a 4G LTE plan for $50/year. No contract with a carrier.

    I am sure some of the premium they charge up front covers the cost of the data plan.

    Good luck getting a 4G data plan from your local carrier $4.16 a month to use on your iPad (which would have cost you more since only the wifi version is $499)

  7. What a waste of time… I cant imagine how someone who has been writing about technology for 11 years could present us with this junk. The only “Bait and switch” here is the promise of a interesting article followed by a crappy opinion that i don’t even think Kevin believes. We either have an Apple fan-boy here or a deadline that came before an idea.

  8. “Cramming that many radios and that many bands into a device isn’t cheap.”

    Kevin, I’m not sure that would be true if the Kindle Fire has a software-defined radio (where software replaces traditional hardware components) and the device uses software-defined antennas. This would also allow the designers to make the best use of limited space.

  9. So much of what is written is not based on fact but on opinion. What is the price of a chip? Price to manufacture? We don’t even have the teardown costs yet.

    This piece of writing should be checked for facts and accuracy by Gigacom. Spend time reviewing the publication as much as you do editing these comments.

  10. Kevin,you claim that Amazon packed ago many antennae into one to avoid supply chain and inventory holding cost… Then you claim that packing so many antennae into one increased cost… Aren’t you refuting yourself?

    1. Hi Ankurawi,

      I can see how you’d reach that conclusion. I should have been clearer. The point I was trying to make is that Amazon may try to excuse the high cost of the device by claiming it invested so much in the modem. I don’t buy because a) No modem is going to cost $130 no matter how fancy and b) Why invest so much in a modem if the idea is to sell cheap hardware. Plus if making a 10-band modem is going to give Amazon additional economies of scale, why not pass that savings along.

  11. Richard Hartzell Friday, September 7, 2012

    Maybe this is off-topic, but how about the $100 premium to go from 32GB of storage to 64GB? No one seems to have noticed, but Amazon is also selling a 64GB Fire 4G/LTE model for $599. That seems very Apple-like (and un-Bezos-like) to me.

  12. Amazon probably is using an off the shelf Qualcomm GOBI chipset. The high mark up is due to the cost of the network access provided to amazon clients by AT&T. Amazon doesn’t have enough engineeers to out Qualcomm, Qualcomm. It’s a great deal.

  13. richardmgarrett Friday, September 7, 2012

    I guess I don’t see the bait and switch — at least not the classic version. All of the Kindles are readily available (or will be soon after Oct 1); there is nothing on the website that seems to nudge a buyer in a particular direction and away from their original purchase intent. What I do see is a kind of ‘BYOD’ model that many MVNOs are now promoting. In a way, this could be another tentative step along the path of Amazon’s foray into smartphones about which Kevin Tofel wrote yesterday on GigaOm.

  14. Kevin,

    It’s not apples and oranges to compare a MetroPCS smartphone at $150 with a tablet with a modem cost of $130.

    We know that the smartphone comes subsidized, and the total cost of ownership includes at least a monthly bill of $50. For one year, that would mean $600 more than the $150 cost of the phone.

    The tablet isn’t being sold on the Razor/Razor blades business model, but the MetroPCS LTE Android phone is.

    @derekkerton

    1. Hey Derek,

      Smartphones do come subsidized, but not prepaid ones. Metro and Coolpad are even offering rebates to lower the cost of those $150 devices to $100. Even if we were to concede that Metro does offer a light subsidy on the device, a $130 modem would still account for more than half the cost of the device, which is ridiculous.

  15. Amazon is sitting at 1.5% margins they have to make it up somewhere, hence over charge (bait and switch).

  16. Wow. This is one dumb, misleading article.

  17. Pjay (Patti) Pender Sunday, September 9, 2012

    For all intents and purposes, 250MB of data on a tablet is NO DATA on the tablet. Personally, I’d probably buy it if instead they offered it with a month-to-month data plan on Verizon. I’d suggest they offer AT&T, Verizon, and T-Mobile, but Verizon has the best 4G coverage in places I go. I’d personally rather pay a monthly fee and get a usable amount of data. I currently use about 6GB/mo of data (on Verizon) on my iPad, and I’m having to watch at the end of the month to avoid exceeding that.

    That said, this does not strike me as “bait & switch,” and titling the article the way you did seems a bit dishonest. You dislike Apple’s model, and you feel Amazon has used it here. We get it.

  18. New Kindle Fire HD Tuesday, September 11, 2012

    I found an article that had some details of kindle fire HD that made me know how much is this tablet really wonderful

    check it right here http://goo.gl/Qm9Pbl

  19. I agree. The ARTICLE was bait and switch. Although the info about modems was interesting.

    “A deadline that came before an idea!’ HEHEHE

    But you know, an internet writer is a tough job. No hits and you get fired. The measurement of your “performance” is unfair, brutal, and instant.

  20. You may be right, except for one thing. A tablet costs a pricey $50-$60 per month for mobile access, in addition to the hardware cost. That’s $600-$720 a year, every year. Vs. Amazon’s $50 a yr. I have a relative in a nursing home w/o access to wi-fi. I can’t afford to pay for her to have mobile broadband every year, so she doesn’t have internet access or what she wants most, e-mail. The Kindle Fire 4G would make her having e-mail capability a possibility. There is no other thing like this on the market, esp at this price. Plus she would be able to stream a few movies, play a few games, and do a little net surfing. The bargain is in the not having a hefty monthly fee. Not everyone has wi fi access.

  21. Yeah, -1 for this article. On top of the other flaws already pointed out in the comments, you seem to imply that companies aren’t entitled to make a profit off of their additional features … that if the price difference is $130, then ALL of that $130 should be hard expenses passed directly onto the consumer at cost. Lame.

  22. I would like to know how much it would cost if you needed to use more them 250mb at any month time.

  23. Maybe part of that markup is going to AT&T to subsidize the absurdly low $50/year data plan they’re offering? Seems like poor reporting (or an Apple bias).

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