But there are a few things that seem to be confusing lots of people, so I’d like to focus on those.
First, while both Amazon (AMZN) and Apple (AAPL) want to “own” the delivery of media to consumers, their strategies are completely opposite of one another. Apple makes its money on hardware. Music, books and video are simply a means to sell more devices. Amazon, meanwhile, makes its money selling media. Devices are simply a means to sell more books, music and video content. So, when you see hundreds of tweets that Amazon is losing $50 on each Kindle Fire, that’s by design. It’s a razor and razor blade strategy designed to establish Amazon as the clear #2 in the tablet market so that they can sell more content.
The second issue is about whether the Kindle Fire will slow the sale of the iPad. While I’m sure that there are some who, considering an iPad, will instead choose the Fire, I don’t think that’s where their biggest impact will be. In fact, for Apple I think the bigger impact will be on the iPod Touch. When I mentioned the Fire to my 12-year old daughter, she thought it sounded cool, but said “it does less than my iPod”. In her mind, it was a Kindle that does video. I then mentioned that it also has a music player and can play games and her eyes lit up. She’d been saving up for an iPad, but I think she’s adjusted her sights to the (more attainable) Kindle Fire.
For households like mine (we have 2 iPads, 2 iPhones, 1 iPod Touch and 1 MacBook Air), the Fire becomes a great secondary device. It won’t replace my iPad, at least not the first generation without 3G. But at $199, it’s definitely something I’d want to have around the house as an extra screen.
Of course, the introduction of the Kindle Fire will probably have its biggest impact on the Barnes & Noble Nook, as well as other Android-based devices planned for release later this year. For hardware-only manufacturers, who can’t subsidize the device through media sales, the Kindle Fire with its $199 price will be a shot across the bow. While there may be a few temporary niches for Android tablets with 3G or similar, this is clearly shaping up as a duopoly and I think it will stay that way for a while.
It will be interesting to watch how Amazon’s pricing strategy for the Kindle and Kindle Fire evolves. The entry point for the basic Kindle has dropped from $249 to its current $79 price and I think that it will soon approach zero. It would make sense for Amazon to use the Kindle as the lynchpin for a continuity program like the book clubs or Columbia House record club of the past. Get a Kindle for free with a commitment to buy 12 books. If I’ve got $100 worth of print books in my cart, it would make sense for Amazon to simply offer to give me the Kindle for free if I switch those to digital.
It’s clear that there are two key players in the digital content platform space – Apple and Amazon. And while there’s room for others, such as Netflix and Hulu, they will have to work within the Amazon and Apple ecosystems in order to thrive. And that’s the big change that the Kindle Fire brings.