Amazon CEO Jeff Bezos unveiled three new Kindle models last week, including the much-anticipated Kindle Fire tablet. Amazon’s new 7” vibrant color multi-touch tablet sold an estimated 95,000 units in the first day of pre-orders for just $199 each. The new Android-powered tablet is compatible with Android apps sold through Amazon’s app store, with the added benefit to stream Amazon’s music, movies, and television for Amazon Prime members. The device is WiFi only (no 3G), but introduces Amazon’s “split” browser, Amazon Silk—partly contained in the Kindle Fire and partly hosted in Amazon’s Cloud network, allowing for fast and smooth browsing. It also features whispersync for picking up where you left off in books or videos on a different device. The Kindle Fire disc space is locked at 8GB, but has free access to Amazon’s Cloud storage for Amazon digital content (books, magazines, music, videos). A big surprise is the persistent lack of adoption of the EPUB standard e-book format; however Amazon offers a free program, KindleGen, to convert non-DRM protected EPUBs into Kindle-compatible MOBI format.
The $199 pricing comes as a shock, as analysts have estimated the Kindle Fire costs roughly $209.63* to manufacture, giving Amazon $10.63 loss on every device sold. This is not a new strategy with this device however; Amazon started to lead with losses on book sales and bled red ink for a long time in order to gain the huge market share they hold today for online sales of all kinds of products beyond books. In this case, they are likely banking on making up their losses in sales through the Amazon News stand, bookstore, video rentals, and app store. While selling expensive merchandise for less than the manufacturing cost, the sale of digital content that requires neither physical inventory nor human interaction can be sold for significantly more than the cost to automatically deliver a file/product. The micro-transaction model of the Kindle Fire is likely where it will turn a profit—a business model unique to Amazon.
Many people were expecting the Kindle Fire to be the tablet that dethrones Apple’s iPad, and at less than half the price of the iPad’s least expensive model, it appears to be a contender. With the Kindle Fire’s smaller size compared to the 10” iPad and the lack of expandable disc space, camera/microphone, or 3G, the iPad is still a more ubiquitous device; but Apple may want to start planning for a price drop to come when Amazon releases its second wave of tablets—Amazon is no stranger to upgrading Kindle models with consistently lower prices. A rumored 10.1” Amazon tablet already has reports circulating for a holiday launch.
*http://wirelessandmobilenews.com/2011/09/kindle-fire-fires-sales-costs-hp-touchpad.html – Wireless and Mobile News
http://www.businessinsider.com/amazon-tablet-event-2011-9 – Live conference coverage, Business Insider
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/09/30/prweb8841771.DTL – Press Release, San Francisco Chronicle
http://www.amazon.com/gp/product/B0051VVOB2/ref=famstripe_kf – Kindle Fire product page, Amazon
http://news.cnet.com/8301-13506_3-20113872-17/amazon-10.1-inch-tablet-to-ship-before-the-holidays/ – CNet News