Amazon’s Kindle Fire Will Dominate the Low End Tablet Market. Here’s Why.

Amazon hasn’t shipped product, but it has already won the race for the low end tablet market. Fan boy premature exuberance, you say? Hold on, hear me out. There’s a simple reason why Amazon will dominate the low end tablet market..

Kindle Fire wins because Amazon has told us what to do with it.
Take a look over at the top level menu on the Kindle Fire over to the left. Come to think of it, I’ll save you the futile squinting. The menu reads “Newsstand, Books, Music, Video, Docs, Apps, Web.” Options are ordered from most specific and least confusing to most abstract. Fancy a read of the NY Times? Cool. Maybe you’ll pick up a children’s book after that for the little one. Then perhaps you’ll buy Angry Birds. Heck, Apple’s television ads have already trained you how to buy apps.

Just for kicks, compare the the Fire’s ad to the Blackberry Playbook ad. “Small enough to take anywhere, but powerful enough to take you everywhere?” Really? That sounds like my laptop. I’m doing fine without a Playbook, thanks.

Blackberry isn’t the only tablet maker to struggle with a succinct and engaging message. I’m throughly perplexed by this ad:

Apparently the message here is you should never be caught without Angry Birds in case of a lightning storm.

Fire Up the Subsidies

Amazon has one additional advantage over low cost (or even total crap) Android tablet producers. Amazon can sell the tablets at a loss and subsidize the device with digital goods. In response to Fire’s USD$199 pricing, Best Buy has already slashed the price of the BlackBerry PlayBook by $200. Which means Blackberry will never match Amazon’s profitability in the segment. I bet the HTC will grudgingly follow soon. While Apple and Samsung will slug it out in the premium tablet market, the low end competitors are now facing an ugly Catch-22.

But Wait..

Not so fast, says Horace Dediu, an analyst at Asymco. He argues Fire’s USD $199 price tag yields Amazon a razor thin margin, Amazon has little incentive to introduce frequent device upgrades. Furthermore, digital goods prices sold through the Fire will also yield thin margins. Those small subsidies mean Amazon has every incentive to prolong the lifespan of each Fire model to amortize losses. Competitors like Apple and Samsung will introduce frequent device upgrades. Amazon will appear to be standing still in a competitive market while customers will rush to HTC or into Apple’s embrace with premium upgrade money.

Come to Jesus.

I don’t buy it. Dediu’s analysis is logically sound, but there’s a hitch. Nobody needs a quad core CPUs with multiple GPU cores to browse the web, read an e-book or listen to mp3 file. Since no one will buy a fire to play Crysis or other GPU intensive games, nobody will care about slower upgrade cycles. In the wacky world of consumer devices, sometimes good enough really is… good enough.

One More Thing

One complaint if you’ll indulge me, Jeff Bezos. I’m not alone when I say the “Kindle Fire” is a pretty lame name.

This entry was published on October 3, 2011 at 3:16 AM and is filed under Uncategorized. Bookmark the permalink. Follow any comments here with the RSS feed for this post.

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