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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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