The new Amazon Kindle Fire is officially selling at a price that is less than it costs to manufacture. This will make many customers happy, but will it be a good for Amazon?

The Kindle Fire costs $201.70 to make, research firm IHS said, but it has attracted a warm industry reception after being priced at only $199. – DailyMail.co.uk

You may be saying to yourself – either Amazon is incredibly dumb or incredibly smart for selling their new Kindle Fire for less than it actually costs to manufacture. Here’s why I believe it is a very smart move:

1) By selling it for only $199 they are effectively outpricing all other competing devices such as the iPad 2 ($499) and the Nook Tablet ($249). When potential customers start to dive into their Kindle Fire vs iPad 2 vs Nook research, the price will most certainly be the first thing to look at; especially with the way people are pinching their pennies these days.

2) This also means that they could most likely outsell all competitors. If Amazon is successful in their marketing strategies, it could cause a major shift in the iPad’s monopoly in the tablet PC market. They currently have an 88% hold on the market.

3) They’ll more than make up for their losses by selling apps and other miscellaneous features through the Amazon Kindle Store.

4) By selling more than everybody else, they’ll gain some solid momentum in becoming THE device that people want to use for their mobile computing needs. This by itself is priceless.

Susquehanna Financial Group LLLP said Nov. 15 that each machine may generate a total of $384 in revenue for the company, including money spent on books, videos and other content. – SFGate.com

Users will be able to access more than 18 million films, television shows, songs, apps, games, books and magazines via the Amazon website. – DailyMail.co.uk

Time will tell if it will be the right move to make, although I personally like the approach that Amazon is taking here. Make the hardware cheap and accessible to your customers. Build a good relationship with them. Once you have that, they’ll be more than happy to throw money at your apps, books, games, music, and movies. Building a reputation for being the company that doesn’t gauge you is worth it’s weight in gold.