Amazon Is Not Doing A $99 Tablet, Despite Rumors

UPDATE: Amazon shoots this down, saying: "It's not happening--we are already at the lowest price points possible for that hardware."

Original: Amazon is working on a $99 7-inch Kindle Fire HD, according to Sarah Perez at TechCrunch.

She calls it a "rumor," and says she's "hearing" it. So, don't put this one down in ink, just yet.

It's a stunning price point, but it's not totally crazy from Amazon.

In November, iSuppli estimated it costs Amazon $174 to make a 7-inch Kindle Fire HD. A year later, component costs could be lower.

Perez notes that the Fire runs on a Texas Instruments chip. Texas Instruments shut down its tablet chip making operations, so it's possible Amazon got a clearance sale price on the chips.

Whatever the case may be, it's not hard to envision Amazon selling a Kindle Fire tablet at or just below its manufacturing cost.

CEO Jeff Bezos says he wants to make money when people use a Kindle, not when they buy one. This makes Amazon completely different than Apple, which makes money on hardware, and picks up some additional revenue from apps and content.

It's also different than Google, which makes money from search. In theory, Google wants to make money on services and content sales, but it's still all about search advertising right now.

A $99 Kindle tablet would be a very disruptive move. Amazon is a quality brand. People admire and trust it. It's not like Asus, or Acer, brands that aren't as strong in the U.S. They could sell a $99 Android tablet, but people would be wary.

A super cheap Amazon tablet is a threat to Microsoft, which is nowhere in tablets and Google, which is just starting to gain traction in tablets.

It's less of a threat to Apple because Apple is playing a different game. It makes a more expensive, but higher quality — from software and hardware perspective — product.

In the long run, like in five years, it will be a problem for Apple because the price of an Amazon tablet isn't going up. The software and hardware aren't going to get worse, they're only getting better.

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