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Amazon has disrupted the fledgling tablet market by launching its Kindle Fire at $199, because it has a different model to most device makers - chasing content revenues rather than hardware profits. Since the Fire made its debut, analysts have been trying to work out its precise profit model, and RBC Capital has taken the latest shot, estimating that every Fire generates well over $100 in additional income for Amazon.

A new survey by the investment banking firm concludes that Amazon loses $2 to $3 on the manufacturing of each Fire, but makes up for this because the tablet format drives additional content purchases. Various analyses have seen the Fire's simple user experience delivering many key benefits for a retailer - it encourages regular revenue streams by bundling the Amazon Prime subscription service, which includes video on demand; and more generally increases customer loyalty, drives renewable subscription revenues and reduces the likelihood that users will shop around at other online stores - even for physical goods.

RBC confirms such conclusions, and analyst Ross Sandler wrote in a research note: "Kindle Fire unit economics are likely to be more favorable than consensus expectations, based primarily on frequency of digital goods purchases. Our assumption is that Amazon could sell 3m-4m Kindle Fire units in Q4, and that those units are accretive to company-average operating margin within the first six months of ownership. Our analysis assigns a cumulative lifetime operating income per unit of $136, with a cumulative operating margin of over 20%."

He identifies ebooks as the single biggest purchase category on the Fire, betraying its roots in the Kindle e-reader range and user interface. His survey says that 80% of Fire owners have bought ebooks, and 58% acquired more than three titles in the first 60 days of owning the tablet. He extrapolates that to assume that a typical Fire user will buy five ebooks per quarter, generating about $15 net for Amazon.

The rest of the Amazon profit comes mainly from apps, with two-thirds of Fire users having purchased at least one, and 41% having bought three or more. That leads to the conclusion that an average user will buy three apps per quarter, putting $9 in Amazon's pocket. Other important revenue sources are video on demand and incremental purchases of physical goods.

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