• by Steve Smith  @popeyesm, January 19, 2012

You can take the Kindle out of the e-reader, but you can’t take the e-Reader out of a Kindle. For all the multimedia variety and connectivity the Amazon Kindle Fire has to offer, it remains predominantly -- overwhelmingly -- a book reader. According to a proprietary study by RBC Capital Markets of over 216 owners, 70.7% cited book reading as one of the top two activities on their new device, with Web browsing trailing far behind at 38.5%. While game apps do relatively well at 29.3%, apps generally are cited only 20% of the time as a top-two function of the Fire. Even more curious is the device’s movie streaming at 13.2%, since Amazon hopes to invigorate its streaming media library with this device.  

But as a book reader, the Kindle may be a content and merchandise selling machine -- a veritable cash register for Amazon. More than a quarter of respondents (28.1%) have already acquired 3 to 5 books on the Fire, and 34.4% have bought six or more titles. Early concerns that selling the $200 Fire at a break-even or loss would negatively impact the company may have been misguided, says analyst Ross Sandler in a research note. “Our analysis assigns a cumulative lifetime operating income per unit of $136, with cumulative operating margin of over 20%,” he writes, as referenced by Forbes. Almost a third (32.7%) have already spent between $21 and $50 on physical goods purchased from Amazon.com on the device.

Sandler estimates that 3-4 million units were sold in Q4. But gifting appears to be a huge driver. RBC calculates that 34.4% of Kindles sold in the quarter were in the first two weeks of its Nov. 15 launch, with a steady decline thereafter. And when asked what features attracted them to the Fire, almost half (46.7%) said it was a gift.

In its persistent battle with Netflix over movie streaming, Amazon was offering to new Fire users a one-month trial of its $79/year Prime membership program, which accesses unlimited streaming video. But Fire users appear to be unmoved by the video option, with 51.2% saying they have not streamed a single video, and another 23.4% saying they have watched 1 or 2. Only 42.1% of respondents are subscribed to the Prime service, but more than half of the trial subscribers appear likely to stay on.  

Fire owners do express a very positive response to the device, regardless of how they are using it. More than a quarter (26.8%) say they are “extremely satisfied,” and another 51.7% are “very satisfied” with the Fire.

Amazon introduced the Kindle Fire on November 15 to mixed professional reviews, but enormous sales. The company boasted of selling over a million units of various Kindle devices every week in the holiday period, although it would not reveal the actual number of Fires sold.