The Amazon (NASDAQ:AMZN) Kindle Fire is one of the most popular consumer tablets to date, second only to the Apple‘s (NASDAQ:AAPL) iPad. Thanks to the Kindle Fire, Google‘s (NASDAQ:GOOG) Android has seen its tablet market share surge in the past couple of quarters. While the Kindle Fire has been a huge hit for Amazon in terms of sales, it has also depressed its profit margins significantly as Amazon takes a hit on each Kindle Fire sold.
Amazon plans to recoup its investment in the Kindle Fire, and eventually make strong profits by selling digital content like e-books, music and movies to the large Kindle Fire user base.
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However, it is also looking at other ways to monetize the Kindle Fire. In the past, it experimented with screensaver ads for the Kindle. Apparently, it is now planning to sell ads on the Kindle Fire’s welcome screen in a package which starts at $600,000. The ad campaign will run for two months and will include ad inventory from Amazon’s “Special Offers” product. For $1 million, advertisers can get even more inventory. 
Not many details are available yet, but Amazon will have to offer significant reach to advertisers to demand such a fee premium. Though Kindle Fire sales have slowed down in the past few quarters, we expect the launch of the next version of the Amazon Kindle Fire to give its sales a much needed boost yet again.
The Kindle hardware accounts for only 3.3% of Amazon’s total value because of razor thin margins. However, Amazon expects to generate increasing amounts of revenue by selling digital content to the Kindle users and through advertising services like these.
We have a $222 Trefis price estimate for Amazon, which stands close to its current market price.Notes: