The Kindle Fire was announced on September 28, 2011 and has been the buzz on the internet ever since. With some incredibly unique tablet features, this new e-reader not only combines innovative features that other competitive tablets offer, but it offers them at a significantly reduced price. Released on November 14, 2011 to eagerly awaiting fans, it quickly sky rocketed to the top of charts.

The Kindle Fire sells for $199 however many people have long since suspected that it cost more for Amazon to make the Kindle Fire than it actually cost consumers. After much speculation on this rumor it was finally confirmed by an analyst who completely dissected all of the parts of the Kindle Fire. The total cost of the Kindle Fire for Amazon was found to be $201.70.

So what is Amazon’s plan with the Kindle Fire?

It is expected that several million Kindle Fire units will be sold in the year 2011 alone so how does loosing almost three dollars on each unit benefit Amazon? Well, their intention is not to make a profit on the Kindle Fire, they plan on making a profit through all of the extras for the Kindle. With millions of customers using the device they will be exposed to new apps and other paid services for the Kindle Fire that should help Amazon recoup their losses.

This tactic is vastly different than Apple, Barnes & Noble, and many other tablet and e-reader device companies. Where other companies charge significantly more for each device and make their profit that way, Amazon is hoping to undermine its competition by trying a brilliant, albeit risky, new strategy.

What areas has Amazon cut costs on the Kindle Fire?

RAM – where many  tablets have 8GB of RAM, Amazon cut costs by reducing theirs to only 4GB.

Memory – here the Kindle Fire has only 8GB of memory, pitiful compared to the iPad which starts at 16GB and can go clear up to 64GB.

Additional features – to minimize costs Amazon didn’t include any of the features that other competitor tablets had such as Bluetooth, expensive wireless chips, and a camera.

Shipping – Last but not least is shipping. Usually companies will ship their devices in fancy boxes with tons of stuff inside however Amazon did its best to minimize this completely. With a simple wall charger and cord, the Kindle Fire only costs about $2-$3 each to ship.

So has Amazon’s new strategy paid off?

Amazon has not released any statistics or information on the sales of the Kindle Fire nor any information on their subsequent earnings through other accessories and apps for the Fire. This information will hopefully be released sometime in the future so it can be seen whether or not Amazon’s strategy was worth the risk or if it simply hurt the company.