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Fire Leverages Amazon's Content Strength

10/03/2011 12:01:00 AM Eastern
NEW YORK – Amazon positioned its $199 Androidbased Kindle Fire tablet as a “vending machine” for Amazon services and physical goods and established new opening-price benchmarks for e-readers, analysts said of the company’s first tablet and a trio of new Kindle e-readers.

The tablet with a 7-inch color touchscreen and the three e-readers with 6-inch E Ink displays came in at prices below industry expectations. The e-readers are priced at $79, $99 and $149. Industry expectations were for an opening e-reader price of $99 and a tablet price of $249, analysts said.

The three e-readers include the company’s first two touchscreen models.

Analysts also said the color-touchscreen tablet, shipping Nov. 15, would likely have little impact on Apple’s iPad 2 share but would have a major impact on the shares held by all other tablet competitors. They cited the Kindle Fire’s price, promotion on Amazon’s heavily traveled website, and the Fire’s proprietary Android- based user interface, which offers simplified access to Amazon’s digital audio, video and e-book content and to Amazon’s own app store. The tablet does not download apps from Google’s own Android Market.

The tablet, analysts and Amazon executives agreed, is designed primarily for the consumption of Amazon content, though Kindle VP Dave Limp told TWICE that Amazon has reached out to Netflix and Pandora to offer apps for the device.

Besides serving as a device to purchase content from Amazon, the Kindle Fire could also spur sales of physical goods on the Amazon website, said Current Analysis research director Avi Greengart. Many purchasers could be enticed to buy the $79/year Amazon Prime service, which entitles users to free two-day shipping on all purchases as well as unlimited movie streaming from Amazon.

Despite the Fire’s low price compared to the iPad’s $499 opening price, Apple has little to fear from the Fire because the iPad accesses 100,000 apps, integrates with Apple’s own wide selection of content, and features a larger screen and more communications and productivity features than the Fire, Greengart said.

The Fire, however, will have “a massive impact on everyone else,” he said.

The Fire, Greengart pointed out, lacks the iPad’s camera and video chat capability, though it does offer email in the form of Gmail, Amazon said. The Fire also lacks GPS. The lack of these and other features, such as 3G, were intended to hold down pricing while keeping key features of most interest to consumers, said Kindle product management director Jay Marine. Such key features include an IPS screen for a wide viewing angle and a fast dual-core 1GHz processor.

Also to reduce cost, the Fire sports only 8GB of embedded memory and no memory-card slot, but it comes with unlimited Cloud storage, executives noted. Even with only 8GB of storage, the Fire has enough room for about 23 to 24 full-length movies, Kindle VP Dave Limp told TWICE. Amazon also reduced the number of sensors to two, one to detect ambient light and one to automatically rotate the display into portrait or landscape mode, he said.

Amazon officials wouldn’t comment on whether they’re making money on the tablet hardware despite the low price, but Limp said that the company’s “macro goal” is to make money on devices and services.

Given the Fire’s $199 price tag, if an iPad’s price is a stretch for some consumers, they now have a much less-expensive option with a strong brand name, said added Strategy Analytics senior analyst Alex Spektor.

Other major-brand tablet suppliers that have struggled in the tablet market made the mistake of pricing their models at or above the opening price of an iPad, Spektor said.

Consumers who will buy the Fire will be interested primarily in a “media experience,” said Amazon’s Marine. He called the tablet “very differentiated” from others on the market because it will access Amazon content “in a seamless way.” It’s also differentiated by its Amazon Silk web browser, which chops seconds off the loading of complicated web pages, largely by tapping into Amazon’s fleet of servers used for its Cloud-based services. And it plays Flash web video, unlike the iPad.

The tablet and Kindle e-readers are priced sharply enough that the company expects a Fire owner to also purchase a reading-optimized Kindle, Marine noted.

The new e-readers include two touchscreen models. They are the $99 Kindle Touch, equipped with Wi-Fi, and the $149 Kindle Touch 3G, equipped with Wi-Fi and AT&T 3G data service. They ship Nov. 21, both using infrared instead of LCD-screen overlays to sense touch without reducing text visibility, the company said.

The $79 non-touch Kindle features Wi-Fi and is already shipping.

All of the e-reader prices are with “Special Offers,” or sponsored ads that double as screen savers. Without the sponsored ads, the price of the non-touch Kindle goes up by $30, and the touchscreen models go up by $40.

Amazon’s previous opening price points for e-readers were $114 for a Wi-Fi Kindle with Special Offers and $164 for a Kindle 3G with Special Offers. Those keyboard-equipped products have been cut in price to $99 and $139, respectively, on the company’s website.

All three e-readers are the company’s first Kindles without hard QWERTY keyboard.

“When a market-share leader is at a certain price, it sets the ceiling” for other major brands, Spektor said of the e-reader pricing.

The e-reader and tablet price points, coming in below what anyone expected, “shows that Amazon has a lot of confidence in its business model,” which “lets them lead with hardware and make money on the content,” added Stephen Baker, The NPD Group’s industry analysis VP.

“What could make it a real big success,” he said of the tablet, is whether Amazon builds up its audio and video content services and app store to match Apple’s offerings.

The Fire’s $199 price point might also spur Apple to adopt a dual-tier strategy as it has with the iPhone, offering an older iPhone at a lower price than the newer version, Baker said.
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