When Amazon CEO Jeff Bezos hit the stage Wednesday in New York City to unveil the new family of Kindle products, a line of inexpensive e-readers and a $199 tablet called the Kindle Fire, he hammered one Jobsian refrain home for the audience:
"We're offering premium products, and we're doing it at non-premium prices."
That mantra was repeated to me later on (several times) by Steve Kessel, senior vice president of Amazon Kindle, almost verbatim:
"We work hard to offer premium products at non-premium prices," he said.
We get it. But more importantly, how is the company able to offer premium products at non-premium prices? Is the company selling the tablet at a loss? After all, no other tablet maker has been able to put forth a device as competively priced--except HP, which only managed to start selling its now-discontinued TouchPad after lowering the boom on prices to spark a fire sale.
Piper Jaffray analyst Gene Muster estimates the company is losing $50 per unit--quite the sum considering Bezos (and several analysts) expects the device to sell "many millions" this holiday season. But here's why Bezos isn't concerned: The Kindle Fire's maker also happens to be the world's largest online retailer, and it can leverage that position to stomach a short-term hit for a long-term future of getting more customers hooked (addicted) on Amazon's services and content.
Piper Jaffray estimates that Amazon will lose $50 for each Amazon Kindle Fire sold at a price of $199
Kessel, of course, declined to say whether the tablet is selling for a loss. He told me with a grin.
"Well, we're a for-profit company I'll remind you, I am not going to discuss the specific economics."
Pressed again, he repeated the same talking point:
"I will just remind you that we're a for-profit company."
But the vision here is to drive sales of digital media content through Amazon, correct? Kessel says.
"No, the vision is to build an incredible customer experience. To do what Kindle has done for reading--that simplicity, that ease of use--to bring that to movies, TV shows, apps."
Amazon Chief Executive Jeff Bezos said at the company's launch event in New York City.
Or, in other words, the vision is to sell movies, TV shows, apps, and yes, more books, on the Kindle Fire. It's a strategy only Apple and Amazon can pull off--every other tablet maker has stumbled because they lack content. Have you ever purchased a book through HP? A song through Motorola? A magazine through Samsung? An app through Toshiba? No, these companies don't provide content--they provide hardware.
Price comparison between Apple iPad, Kindle Fire and B&N Nook Color
Amazon, on the other hand, can leverage its position as a retail giant. Think about what Apple did a decade ago when it introduced the iPod and started selling music. The record labels were in a tight spot, hemorrhaging money over pirated music. And Steve Jobs came along with a solution, leveraging its position as the industry's savior to force the labels to sell songs at the never-heard-of-before 99 cents, a price point which helped drive sales of the iPod.
Ten years later, Amazon's approach is almost the opposite. It's selling the Kindle Fire at a reported loss, aiming to make up for it through the services it provides. Music? You'll get that through Amazon, with songs starting at just 69 cents. (Remember, this was the company that was able to offer Lady Gaga's latest album for under a buck.) Books? No other company has the library of titles Amazon has, and for as low prices. Movies and TV shows? Yes, Amazon again. Customers will also be given a free one-month membership to Amazon Prime, a service that gives all customers access to two-day shipping (which could help spur physical sales) and Amazon Instant, the company's Netflix-style streaming service. And on the Kindle and Kindle Touch--in case the ease of ordering from Amazon via Kindle wasn't enough to attract impulse mobile buyers--the company is knocking off between $30 to $40 if you'll let the devices come pre-loaded with AmazonLocal, Amazon's local deals marketplace and Groupon competitor.
The Kindle Fire isn't an iPad killer by a long shot. The idea here is to make a killer for Amazon's retail business--and with the low price point, perhaps make it No. 2 on the market. Forrester Research analyst Sarah Rotman Epps says.
"I think the reality is that Amazon will be the strong No. 2 competitor to Apple. But I don't think Amazon's goal is to say, 'We want to be No. 2.' I think their goal is to sell a lot of content."
Epps estimates Amazon will sell about 3 million Kindle Fires the first quarter it's released. Ironically, the more devices the company sells, the larger the loss is up front. But on the back end, that means 3 million more customers all wired to the Amazon store.
That's why SVP Kessel kept reminding me Amazon is a "for-profit company." One way or another, he and Bezos are determined to reach that end.
COMMENTARY: Jeff Bezos strategy for the Kindle Fire is the old Gillette razor blade and HP printer increasing returns strategy. Lose money on the razors and printers, but make money, lots of it on the blades and printer ink cartridges.
Many hardware experts believe Amazon will lose between $10 to $50 on each Kindle Fire sold, but most of the money will be made on the backend through sales of books, apps, TV programs and films. If the strategy works, Amazon could make a ton of money.
The latest estimate is that Amazon will sell 3 million Kindle Fire tablets. This means a loss of anywhere between $30 million to $150 million. If each one of those Kindle Fire owners buys two books at $15.00 per book, 10 apps at $1.99 each, and 25 music downloads at $99 each, Amazon stands to make a slight profit or breakeven. After this, it's all profit.
The Kindle Fire reviews are finally coming in, and for the most part, they are overwhelmingly positive. Here is a video review of the Kindle Fire by E.M. Kwan.
Here are the Pro's and Con's:
PRO's
- Price - The Kindle Fire's $199 price won't put a huge dent in the consumer's pocketbook. It's an impulse buy. You can buy two for the price of one iPad 2. Just in time for Christmas.
- Screen Resolution - The Kindle Fire's screen resolution is 1024 x 600 pixels, with 169 pixels per inch. The RIM PlayBook had 169 pixels per inch in a display of the same resolution, the original Samsung Galaxy Tab from a year ago had 149, and the Apple iPad 2 has 132. Acer's Iconia Tab A100 is at about 170 ppi, and the just announced Toshiba Thrive 7”, due in December, is at 225 ppi with its 1280 by 800 display.
- Onboard Storefronts - The Kindle Fire's on-board storefronts for Kindle books, Android apps, and movies and TV shows are visually appealing.
- The 95% Solution - The Kindle Fire gives you 95% of what the iPad 2 offers at half the price. That's killer, dude.
CON'S
- Memory - The Kindle Fire comes with only 8 gigs of memory compared to the iPad (16gigs, 32gigs and 64 gigs) and B&N Nook Color (8gigs built-in, but can be increased to 32gigs with an optional memory card0.
- Apps - Kindle Fire uses a customized version of Android 2.3. Apps will come from the Amazon Appstore, but Amazon stocks a fraction of the total number of Android apps available now--just 10,000 of the 200,000 in the Android Market. Apps requiring a webcame may not work.
- Camera - The Kindle Fire lacks a webcam. The iPad 2 has two (front and back). The B&N Nook Color doesn't come with a webcam either.
Some mobile device experts believe that Apple will come out with a cheaper iPad, the "iPad Mini" (my name, not Apple's) and this will put the Kindle Fire out-of-business. Possibly, but don't count on it. I also seem to recall Steve Jobs calling the Samsung Galaxy Tab's 7-in screen too small. He called it, "DOA". Will Tim Cook, the new Apple CEO, ask himself, "What would Steve do?", or will he go the other way and come out with a smaller, cheaper iPad? Folks, I have a feeling that the tablet wars are just beginning. It's nice to have real competition for a change. I've been dreaming of an iPad-Killer for too long. Maybe my Messiah is finally here.
Courtesy of an article dated September 29, 2011 appearing in Fast Company
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