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Amazon have announced their new Kindle Fire tablet, which is set to launch at a low price point of only $199. This extremely competitive price point is lower than initial expectations and follows the Amazon strategy of allowing the audience to buy the hardware at a cutthroat price, only to make money later from application and book sales. Amazon have one of the best store infrastructures, so it is possible they will be a success where other Android tablet makers have failed.
When Amazon announced the price it caused a ripple in the industry and other manufacturers may be forced to drop their hardware prices to the public. Reuters claim that many Asian technology companies are already facing pressure to drop their prices to compete.
While Amazon's strategy seems daring, they have been successful with their Kindle e-reader device, generating many millions in revenue from book sales. To mount a serious attack on Apple, the price certainly has to be kept as low as possible – a point that many other manufacturers seem to be missing. In fact if we look around the e-tailers today in the UK, many other tablets are exactly the same price as the iPad 2. With consumer faith so strong for the Apple tablet, we see no reason why sales for other tablets would be strong – not with current pricing.
This is how Amazon will quickly build a strong user base, by making very little, if any profit from the Fire tablet. Money will be made via their comprehensive store system and the purchase of software.
Analysts are already saying that Samsung will be knocked from the Number 2 perch by Amazon. Samsung also face legal issues from Apple, with their devices being blocked from sale due to patent infringement.
Adam Leach, analyst at research firm Ovum, told Reuters “The pricing is critical to gain traction in the tablet market… Rival manufacturers have failed to attract consumers as they have matched the iPad's price point without matching its content offering. Amazon's retail-based business model allows the company to subsidize the device on the premise that consumers will buy more from Amazon, be that physical goods or its digital content.”
Kitguru says: Amazon Fire to claim the number 2 spot? We think it is a very strong possibility.
When you’re taking most of a book’s cover price without even having to pay for the warehousing it, that’s a lot of spare cash to cross-subsidise with. But the geek’s gain is publishing’s loss, Amazon are grinding the old houses into the dust. Or at least until ebooks take over completely, but I expect Amazon will still find a way to take most of the cash, and governments’ refusal to investigate their monopoly isn’t helping. Still, number 2 should be easy for them unless Apple claim to have a patent on reading.