Thoughts on Amazon’s new Tablets

In early September Amazon hosted an event introduce its new line of Kindle devices. I won’t dive into all of the devices and features as you can see the specs on Amazon.com. I’ll discuss what I think is interesting and important about the products.

eInk eBooks Readers are Not Dead

Although the Kindle Fire devices took up the majority of Jeff Bezos’ time on stage, the presentation started off showing their new eInk based readers. Amazon has reduced their line to two models: the Kindle and the Kindle Paperwhite.

The Kindle is the same as the entry level Kindle of last year except its price is now $69 instead of $79. The barrier for eBooks continues to go down begging the question of when will the reader be free? Maybe next year they’ll throw one in with a Prime account?

The “Kindle Paperwhite” replaces the Kindle Touch and Kindle Keyboard. The Paperwhite is a touchscreen device with a sidelit screen for viewing in low lighting conditions. The lighting system is unique and quite sophisticated, again showing Amazon’s commitment to eInk readers by putting significant engineering resources behind them. In addition to the lighting, the screen itself is improved with faster refresh rates, more contrast, and more pixels for a better reading experience.

One thing that has not been carried over from older Kindles is an audio system. There is no speaker or headphone jack anymore. Amazon must have decided that so few people use this feature it is not worth the cost to include the hardware. It is a bit curious though as they later made a big deal about how audio and reading can sync on the Kindle Fire.

At $119 for the wifi version and $169 for the 3G version, the price of their top of the line eReader stays low enough to make it an impulse buy or an inexpensive gift.

Low Price Does Not Have to Mean Low Quality

Many considered the first Kindle Fire to be “good for the price” meaning it didn’t perform well but you didn’t expect much for only $200. With new Kindle Fire HD, Amazon has clearly given a good deal of thought to the hardware and want it to be “the best device at any price.” Both the 7″ and 8.9″ tablets have leading edge hardware technology including superior displays, better wifi performance, and high quality audio. LTE is also available as an option with the 8.9″ tablet. Considering that Bezos started by saying that people don’t care about gadgets, they want services, he spent a good deal of time talking about the advanced features of the hardware so it is clearly important to them that people know these are high quality tablets. They are clearly squarely competing with iPad.

With the 7″ Fire HD starting at $199 and 8.9″ model starting at $299, they are looking to undercut the competition (specifically Apple) on price.

Amazon Understands Its Customers

Amazon showed that they understand what its customers want.

Good product at a low price. It sounds like they are they aren’t cutting corners on hardware but they are selling at very low prices. What’s not to like?

Good content viewing experience. Amazon invested a lot in superior screen and audio capabilities for watching TV shows and movies. Fast wifi ensures smooth streaming.

Lots of content. Amazon’s content selection is their big advantage over Google and maybe even Apple. The weakest area is the their app selection.

Internet use. In addition to content consumption, the Fire HD can be used for other computing tasks. It features a rich email client (with Exchange support), a Facebook app, and a decent web browser. This should keep many people happy.

Family/Kid controls. The FreeTime feature to manage how children use the device is brilliant and will be a selling feature to families. iPad has no such feature.

Amazon Wants to Move Product

Amazon is offering the high quality hardware at bargain prices. Fire devices range in price from $169 to $499. At $169 they can undercut Google’s Nexus 7, and at $299 they undercut Apple’s iPad 2 by $100. On the high end, the $499 tablet with LTE undercuts the LTE iPad by $229.

With LTE devices, Amazon is offering a $50/year subscription which gives 250MB per month. For light wireless usage this undercuts everyone. Although, anyone who really wants to use wireless data will find the 250MB data cap woefully inadequate.

How can Amazon sell these products for these low prices?

1) Amazon is not looking to make money on the device. Jeff Bezos said this himself: “We don’t make money selling devices, we make money when people use our devices”. They are selling these at or below cost and looking to make it up on selling content. If they sell an Amazon prime account for $79 to each Fire user I’m sure they’d be back in the black.

2) Advertising. Something not mentioned at the event was that all Kindle devices will now show ads on the lock screen. That has to be offsetting some of Amazon’s costs but how will users react? Amazon has been offering their eInk Kindles with and without advertising for the last year. I would presume their data shows that people are choosing lower prices over an ad-free experience. I don’t doubt that but I can’t imagine Apple ever doing the same.

Amazon is in it to Win

It is clear Amazon has taken great care to create a good product at a good price. If they were able to take 22% of the US tablet market with the original Fire, they should take a much bigger chunk with the Fire HD line.

The presentation itself make it clear how seriously they are taking this space. They provided live demos (indicating the products were done and not still in development), prices, and availably. All things potential consumers need to know. In fact, some of the devices were available within a week while there was still buzz around the event. The whole presentation was carefully crafted with Jeff Bezos singlehandedly making the entire presentation. Steve Jobs would be proud.

Amazon’s Weaknesses

Amazon’s product line and strategy look great. What can go wrong?

Amazon has to deliver the goods (so to speak). The tablets sound terrific on a spec sheet, but how will they actually perform? Early reviews are not so great as there are reports of sluggish performance. That might not hurt them too much as people may have a “well it only costs $xxx” attitude but it certainly won’t help move product.

Amazon also has to be able to keep up with demand. The Fire HD line is rolling out in time for the holidays and if they sell out in October it will be a big problem. There will be big demand and they had better be ready for it. Managing the supply chain is one of Apple’s core strengths. We’ll see how well Amazon does in this regard this fall.

One of the Fire’s biggest weaknesses is in its app selection. Only certain Android apps run on a Fire so they do not have the full selection other Android devices do. They also do not have near the collection that iPad offers. This can keep the Fire from being used for all sorts of applications. Maybe if the Fire is successful it will lure developers to create the apps.

Winners and Losers

Clearly Amazon users are winners. If you’re invested in the Amazon ecosystem, you have some great choices for devices at great prices. Hell, even if you’re not an Amazon user, these are still a bargain.

Who are the losers? 

Samsung, Sony, Motorola, and anyone else selling an Android tablet. Selling Android tablets is already difficult and the Fire HD tablets with their low prices is going to make it harder for anyone trying to make a profit on selling a device. Amazon can sell the tablets at cost, the others cannot.

Google. Even though the Fires run Android, Google gets none of the benefit as all of the Google services are stripped away by Amazon. Even the default search engine is Bing! So Google picks up a lot of the development costs and gets none of the benefit.

Microsoft. With Amazon selling an 8.9″ tablet for $299, it is going to be hard to sell Windows RT tablets at $499 (which is what I am assuming they will cost). Microsoft desperately needs momentum at launch in late October and this certainly doesn’t help.

Apple. Apple’s strong app and iTunes ecosystem will continue to sell lots of iPads so don’t short Apple stock yet, but they may have a real competitor that can significantly undercut them on price. The keys for Apple are to make sure that iPad’s performance and experience remain superior. Apple should be looking to fill the gaps on features that that Amazon offers that iOS is lacking such as FreeTime. As a parent of kids who are addicted to our iPad I see that as a killer feature.

Conclusion

Amazon showed us that it is committed to building its own devices to support its business of selling content (books, music, movies, etc.). They have spent considerable dollars in engineering to build a family of devices from eReaders to full sized tablets. Their aggressive pricing depends on buyers using these tablets to purchase Amazon content, preferably Prime accounts. Customers who only use these tablets for web surfing and email reading do no good for Amazon.

As they go head to head with Apple, it will be interesting to see which business model comes out on top; Amazon’s (selling devices at cost to make money on content), or Apple’s (providing content to sell expensive devices). So far it has been working out pretty well for Apple, but Amazon has a compelling story now.

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About Lee J.

Mobile Guy!
This entry was posted in Analysis and tagged , , , , , . Bookmark the permalink.

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