How low will Amazon’s tablets go? We’re now hearing that a $99 Kindle Fire 7″ tablet is in production, and will be shipping this year. At a price that low, the Kindle Fire would be able to more easily compete at the tail end of the Android-based tablet market – an area which is today dominated by low-cost tablets out of China, often sold at the sub-$100 price point.
According to what we’ve heard, the $99 Kindle Fire HD will also still sport a TI processor like the rest of the lineup, and will have a 1280×800 resolution, like today’s Kindle Fire HD 7″ does.
This report follows an Amazon announcement made earlier this month about reduced prices on its Kindle Fire HD 8.9″ devices. The Wi-Fi-only version will now cost $269, down from $299, while the LTE version dropped from $499 to $399. It also follows news of a forthcoming carrier billing deal that’s about to go live - something which hints that Amazon is now scaling up and becoming more aggressive with its product line up.
Amazon CEO Jeff Bezos unveiled the new Kind;e Fire HD 7-inch and 8.9 inch tablets on September 9, 2012. The Kindle Fire HD 7-inch tablet with 16 Gigs of storage is $199.00. The larger 8.9-inch tablet with 16 Gigs of storage is $269. (Click Image To Enlarge)
Typically, a price drop signals one of two things – that the manufacturer or retailer is attempting to clear out inventory ahead of a new model, or that it just wants to sell more of the item, at a faster pace. According to other industry experts with visibility into tablet usage trends we’ve spoken with, the Kindle Fire HD 8.9″ is not Amazon’s most popular model – the 7″ HD tablet is.
Today, the Kindle Fire HD tablet is priced beginning at a reasonable price starting at $199, while predecessor the older Kindle Fire (non-HD, 2n generation) s an even lower $159.
While a $99 price may seem extraordinary, IDC Research Director on tablets, Tom Mainelli, says that such a thing actually sounds reasonable. His firm just put out an updated tablet marketshare forecast this week, stating that this year tablets running Google’s Android operating system would overtake the iPad for the first time. The Amazon Kindle Fire, of course, uses its own forked version of Android.
Mainelli explains that Amazon’s competition isn’t just the iPad, it’s all these low-cost tablets running Android. Over Black Friday and the holidays in particular, you could get a $199 HD tablet from Amazon, the slightly cheaper non-HD version, or you could buy a $99 (or even in some cases $79) Android tablet from relatively unknown manufacturers in places like Walgreens, CVS, Bed, Bath & Beyond, and elsewhere.
Mainelli says.
“The infrastructure is definitely in place for Amazon to go even lower. If they can sell the product at roughly what it costs to build, that fits their long-term vision to make money selling you content on that device. It’s entirely possible – physically possible – to create a device that costs $99, particularly at the scale that Amazon would do it.”
Android tablets prices across the board are coming down, too, which also lends credence to this possibility. For example, even HP recently announced a $169 Android device. Everyone in this space is beginning to attack the sub-$199 price point, given that Apple has staked out the high-end of the market at $329 and up.
So if the game is becoming “how low can you go?”, Amazon is in a good position to compete here, as it’s historically been a low-margin business. It doesn’t care what it makes from tablets right now – it’s about getting consumers a device which connects them back to the Amazon ecosystem, where they will spend on other Amazon products and services.
Mainelli also points out that the TI – the processor brand that Amazon uses in its current Kindle Fire devices – has been getting out of the chip business. It was even rumored last fall that Amazon was in advanced talks to buy TI. That never ended up happening, but what that story points to is that Amazon has deep ties with the chip maker, and could have easily cut a deal where it agreed to buy up TI’s remaining remaining stock for cheap. That could help Amazon now deeply discount its tablets retail prices.
Amazon sold 4.8 million Kindle Fires in 2011 (shipping only in the fourth quarter), and in 2012, it shipped 10.4 million units worldwide, according to IDC’s estimates. It has been widely reported that these tablets are sold at a loss, though Amazon CEO Jeff Bezos told the BBC in October that’s not quite true.
Bezos said at the time.
“We sell the hardware at our cost, so it is break-even on the hardware.”
Amazon could break even at the $99 price point, and get its tablet into more people’s hands by doing so, pulling them in to its ecosystem.
For what it’s worth, Amazon denies that such a price drop will be happening. A company representative told us.
“We are already at the lowest price points possible for that hardware.”
For that hardware, maybe.
COMMENTARY: A lot of mobile device experts predicted that Amazon.com would lose money on the original Kindle Fire 8.9-inch tablet when it was introduced to the media in New York on September 28, 2011. It now turns out that Amazon is breaking even on the hardware at its current price of $159.00 (originally $199.00).
Amazon CEO Jeff Bezos took a huge gamble when he launched the original 8.9-inch Kindle Fire tablet at a price of $199. Many mobile experts predicted that the Kindle Fire would lose $50 per table, but it now appears that the risk Jeff took was worth it, because he more than likely broke even on the hardware, but he generated substantial incremental profits from selling accessories, extended warranty contracts and apps off the ecommerce giant's site. In a blog post dated October 2, 2011, I wrote about Amazon's increasing returns strategy, and it now appears that I was correct in guessing that Amazon was still make a profit from selling the original Kinddle Fire.
It now appears that Jeff Bezos believes that there is a huge virtually untapped market for a 7-inch tablet priced at $99, and he is willing to gamble once again, that he can still make money. If the rumors of an Amazon $99 tablet are true, then Jeff Bezos is the master of the increasing returns strategy.
Courtesy of an article dated March 20, 2013 appearing in TechCrunch and an article dated September 7, 2012 appearing in Tech-Thoughts
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