[markbot]

The actual hardware of the Kindle is not going to be more expensive than that of the Sony Reader 505. It's even made of cheaper materials.

Assuming that retailers get at least a 20% gross margin and so does Sony (Sony had gross margins of 22% in the last year)....this means the cost of the 505 to actually produce and ship to the store is aprox $192. And I would actually have to say that this is a high estimate. This doesn't include admin costs, etc.

So let's say the Kindle costs $192 to manufacture and ship to the customer.

This leaves the considerable cost of the EVDO. Assuming that the product cycle is 3 years....probably shorter....then the maximum cost of the EVDO per month would be $5.75....if u want to break even on the device. Although this doesn't factor in revenue sharing from downloads....and I'm sure Sprint does get revenue sharing.

Let's say the cost of the EVDO is $4 per month....flat per device (but with revenue sharing on downloads of course). This means gross margins are 16% for amazon. So they make aprox $63 per Kindle sold. This doesn't include admin costs.

Then of course they are making money on the book downloads. losing money on new books...making heeps of money on older books.

Overall, I think the business model works. This is a viable business. Amazon will stick around for a long time!!!