Redefining the Tablet Market

The Kindle Fire is a tablet/e-reader that was introduced by Amazon in an attempt to compete with other Android tablets as well as the Apple IPad. Developed in the United States, but targeted at both domestic and international markets. It offers a variety of different features and services. These include, but are not limited to, access to over 20,000,000 movies, songs, TV shows, magazines and books, thousands of popular apps, ultra-fast web browsing through Amazon Silk, free cloud storage for all Amazon content, a wide and vivid touch screen, a powerful and fast dual-core processor, and access to Amazon Prime membership and the Kindle Owners’ Lending Library.  The main selling point for the Kindle Fire, however, is the price. Starting at about $199 the Fire is a much cheaper option than the Ipad and other similar products, which usually cost well over $300.

The reason behind Amazon’s ability to market such a low cost alternative is because they wanted their product to focus on content consumption rather than content creation. In other words, Amazon was able to cut costs by offering a product that provides content to the user, but does not allow them to create it on their own. This means that a lot of the flashy, but expensive features could be left off, like the camera, large storage capacity or mobile network connection. Even with the more expensive versions of the Fire, like the Fire HD, which does include have some content creation features, the costs associated with those features are much less. For example, the data plan for the 4G data plan for the Fire HD is only $50 a year, roughly $180 less than Apple’s 3G data plan. Using their price advantage, Amazon has been able to attack the Android tablet market and become the market leader in that segment. At this point, the Kindle Fire does not represent direct competition to the Apple IPad simply because Apple’s market share is so overwhelming and because it cannot match the IPad’s features. They hope to undercut the IPad market by offering a cheaper alternative with access to superior service.

The most interesting thing about Amazon’s marketing of the Kindle Fire is that the company’s goal is not to generate revenue from the sale of tablet devices. Instead, it wants to develop a new channel for its e-commerce business as well as a new platform to help improve the dominance of its content and cloud computing services. This is because the company recognizes that a tablet is meant to provide services for the user, not act simply as a cool gadget with flashy capabilities. I believe that they are right and that they have a real chance to take on Apple in the tablet market. It may take some time, but they have positioned themselves well with a product with low-end pricing and high end content and services.


10 responses to “Redefining the Tablet Market

  1. Will Amazon be possibly vulnerable to anti-competitive charges if it sells below cost to drive out the iPad?

    How did it avoid the patent wars that locked Samsung and Apple in mortal combat… i wonder if it was intentional on Amazon’s part (or on Samsung’s to provoke Apple…)

    • I don’t think they should be subject to anti-competitive charges because they positioned themselves as a different product than the Ipad, even though they ultimately compete in the same market. Really what Amazon is selling are the services that the Kindle Fire gives the user access to. The Ipad, on the other hand, is being marketed as a revolutionary product in it’s own right. Amazon has chosen to take a hit in its profits from the hardware side of the business in order to increase its market share in a recurring revenue stream. There’s nothing stopping Apple from doing the same thing.

  2. I remember having a discussion about Amazon’s e-readers last semester in Economics. Apparently, Amazon purposefully undersold its product to get market saturation (or close to it) which would then drive out competitors. Curtis also told us in Corporate Finance that Amazon is still in the red, even after all these years of being in business. I agree that Amazon sells some great products, but I wanted to play devil’s advocate in terms of their business strategy.

    • Amazon absolutely did undercut Apple on the pricing of their tablets in order to gain market share. They are hoping to make up for that loss of profits by increasing revenues from online media services. It is the only way they can compete with the product that created the market.

  3. Has anyone heard about Apple’s new IPad? its supposed to be smaller and cheaper than the old IPad, kinda like the kindle. I wonder how it would do and how it would compare to the kindle.

  4. Like Brian I have discussed Amazon and the Kindle in Corporate Finance. I agree that it order to be competitive in the tablet market it was necessary for Amazon to keep prices low in an effort to attract consumers. While I do believe this was a smart business decision, it seems a little risky that Amazon would rely on the fact that it would make up for its lost revenue through the sale of books and movies.

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