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Amazon Terrifies Other Android Tablet Vendors With $199 Kindle Fire

Amazon's (AMZN) announcement of the Kindle Fire Wi-Fi $199 tablet is impressive news. Until now, Apple (AAPL) has defined the tablet market through design and, as importantly, being first in with a real consumer device. But if you thought that the iPad was the market, think again. Amazon is about to break open an entirely different segment, and the rush for devices will heat up remarkably. Yes, CEO Jeff Bezos is about to have a very merry holiday.

Apple's secret competitive strength -- and weakness
PC vendors have thrashed about with tablets for years. Too heavy and clumsy for consumers, they enjoyed a modest niche among industrial users. And then Apple came in with the iPad.

Already enjoying recognition for the iPhone, Apple used the same design ideas -- light, long battery life, multi-touch interface, and focus on reading, music listening, and video watching -- to manufacture a hit. The price tag was a bit high at $500 for an entry system, but it was the only game in town.

As happens so often with Apple, it exactly hit the type of device that consumers wanted. The company sold iPads about as fast as it could make them. Microsoft (MSFT) kept whispering, "Windows," but no one could hear. Google and its partners tried with Android tablets, but they all fell down.

That's because Apple set the bar high and anyone else was bound to look like a copy cat. And yet, the prices were similar. Would you buy a knock-off piece of clothing for the same amount as the original designer goods? No. Apple had a great niche -- and, as it also does, focused on high margin business.

Here comes the growth
That status quo was safe until someone upset the market dynamics, which is what Amazon just did. The trick was the new price point married to impressive capabilities. By coming in at under $200, it has opened tablets to a much wider swath of the buying public, especially in economically difficult times.

Suddenly, there's a cheap alternative to an iPad that has the imprimatur of a major company and familiar brand in "Kindle." It's one of the more interesting exercises in brand extension that you'll see:

  • Tablets are close enough in concept to e-readers that Amazon didn't risk eroding the Kindle brand.
  • Although the original Kindles were more expensive, the price range has dropped far enough that this is an upward movement in price, so there's no threat to a higher end clientele. And yet, because the price is lower than the entry-level iPad, it also looks like a bargain to consumers.
  • To support the Fire as the upper end of the company's offerings, Amazon announced even cheaper Kindles, including a non-touch one that will sell for $79 and the black and white Kindle Touch for $99.
  • Amazon has the content support and infrastructure to make consumers pay attention.
This is going to be one popular set of products this holiday season.

(Almost) everybody wins
Analysts and the press often make the mistake of viewing markets as a one-player-must-win jousting field. That's not the case for tablets. No, the Fire doesn't come with 3G, but that doesn't matter. Amazon has targeted a different segment of the market.

The Fire may cannibalize some iPad sales, but the effect will probably be relatively small. Instead, Amazon is about to expand the market. Think that tablets were putting pressure on PCs before? It's about to get much worse.

There are some losers on the tablet end. Many competitors that are fielding Android-based products that don't have the clear differentiation of Amazon will find themselves increasingly locked out. Until they either build something that goes well beyond what the iPad can do or manage a full-featured entry with a low price, the tablet market will become bifurcated.

That said, I would expect others to take a similar path. Barnes & Noble (BKS), for example, got very close to a regular tablet with the NOOK Color. Don't be surprised if they announce a Kindle Fire competitor in the near future.


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