Amazon's Kindle Fire Is Losing Share To Android Tablets, But The Device Is Still Succeeding At Earning Money From Users

Holiday sales of Amazon's Kindle Fire HDX were not strong enough for Amazon to maintain tablet market share. The company shipped just 5.8 million tablets in the fourth quarter, compared to 41 million shipments of Android tablets. The Kindle's performance resulted in a dip in market share from 10% in the fourth quarter of 2012 to 8% at the end of last year, according to BI Intelligence estimates, which are based on data from Strategy Analytics, IDC, and Canalys.

Certainly, Amazon can't be thrilled with the tablet's performance. But in realty, Amazon has admitted that it sells the devices at cost, and the idea was never to have the most popular tablet out there.

Instead, as BI Intelligence details in a recent report, the Kindle Fire is about giving Amazon users one more means of accessing the company's vast digital library.

Amazon generates revenue from Kindle Fire users by encouraging them to download from Amazon's library of apps and media, view ads, access related Internet services like e-commerce, and join its Amazon Prime all-in-one loyalty service. This is an important model that the tech industry should be paying attention to: Amazon's Kindle Fire shows how you can deeply discount your hardware, lag behind competitors in terms of market share, and win in revenue terms.

In the report, we dig into available data on Amazon's unique mobile strategy. Amazon has achieved respectable results in terms of app downloads and app revenue on Kindle Fires, and yet is often left out of mobile platform analyses that focus on Apple, Google, and Microsoft.

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Here are some of the key numbers behind Amazon's Kindle Fire ecosystem:

• A massive, global consumer base isn't everything. The Kindle ecosystem will account for 11% of Amazon's total revenues this year, according to Morgan Stanley, including revenues from digital content streaming and downloading, app purchases, and advertising revenues.
• Amazon Prime subscriptions are another key source of Amazon revenue, and Kindle Fires encourage subscriptions because subscribers receive free unlimited video streaming and e-book borrowing. Morningstar estimates that there will be more than 10 million total Amazon Prime subscribers this year.
• The Amazon Appstore is also generating strong revenue results. Popular Kindle Fire apps are generating 59 cents of revenue for every dollar earned by top apps in the Google Play store, according to a Distimo study. Download volumes are about half those on Google Play for top app titles - impressive considering how many more Android devices are in circulation.
• Meanwhile, Amazon's advertising programs on the Kindle Fire also generate nearly $200 million in ad revenue for the company, according to projections.

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Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.