Amazon Kindle Fire HD strategy could be Apple margin headache

Amazon Kindle Fire HD strategy could be Apple margin headache

Summary: Amazon's move to mock the iPad mini price on its home page illustrates how the company plans to use its hardware as consumption vehicle model to its advantage.

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Amazon is pitching its Kindle Fire HD directly against Apple's iPad mini on its home page in a move that also illustrates dueling business models.

Consider the nuances behind Amazon's home page campaign vs. the iPad mini:

  • Apple is primarily a hardware company and sells premium devices. 
  • Amazon is also selling tablets and aiming for high quality at value prices. 
  • Amazon's hardware pricing is cheaper because it'll sell the Kindle Fire HD at roughly cost and make money as consumers use the device.
firevsipadmin

For now, both models co-exist well---and most likely will continue that way. However, Amazon is pushing its subsidized hardware model and if an entire industry goes that direction it will put pressure on the iPad mini.

When Apple launched its iPad mini it took direct aim at the Google Nexus 7. The argument was that the iPad mini was worth the $329 price tag, which was a bit high to a few analysts. Amazon is working the perception that the iPad mini price is too high.

All Amazon has to do is be in the same neighborhood as the Apple hardware features. Cheaper prices combined with a strong ecosystem may take care of the rest.

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Topics: Mobility, Amazon, Apple, iPad, Tablets

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  • Amazon model threatens Google more than Apple.

    "However, Amazon is pushing its subsidized hardware model and if an entire industry goes that direction it will put pressure on the iPad mini." That should worry Google more than Apple. Like Amazon they're selling hardware at a loss to make money from a service, in Google's case advertising. The problem is that advertising on Android looks to have some problems (cf http://www.zdnet.com/opera-ios-dominated-mobile-ads-in-q3-7000006454/). Granted Android devices still yield lots of data for Google, but running 3rd in mobile ads doesn't sound good for an ad company's mobile operating system.

    There is no pressure to put on the iPad mini. If it doesn't sell at $329 Apple isn't going to discount it, they'll just discontinue it. They're not in the business of making loss-leader hardware, and the iPad Mini has already been branded as a low-margin item. If Apple doesn't sell truckloads of them this holiday says, they'll be the next Mac Cubes.
    matthew_maurice
    • Re: There is no pressure to put on the iPad mini.

      There is if Apple doesn't want to cede even more of the tablet market to Android. Remember, it's already at 41% and still rising.

      Apple gave away dominance of smartphones to Android through complacency, do you think it will repeat the same mistake?
      ldo17
      • It is not rational

        To believe that Apple can maintain dominance in a market where the price floor on competing products is, for all intents and purposes, $0. There are, right now, $13 ereaders out there and there are working $40 tablets. These are only going to get cheaper because the market (i.e. the billions of people coming online in the years ahead that cannot afford such a luxurious item as an iPad) demands it.
        oncall
        • Amazon's dominance can not depend on this kind of marketing

          1) Kingle Fire HD still has not Retina class resolution, so it having 30% better clarity does not make principal quality difference as Retina screen would;

          2) iPad mini's screen is 35% larger -- and actual browsing use area is like 50% larger or more;

          3) since Kindle Fire HD still does not support FullHD, its wider picture does not make it too much better, and iPad mini still can play HD movies and TV, even though with cut parts on the left and on the right of the image, or with black stripes below and above it;

          4) iPad mini has two 2.5 and 5 GHz bands Wi-Fi, so I am not sure what Amazon talks about in relation to Wi-Fi speeds;

          5) iPad mini is like 90 g lighter and way thinner;

          6) iPad mini is done of good materials, not from creaky flexible cheap plastic.
          DDERSSS
          • "Retina" is a marketing term

            1) The Kindle Fire HD has better resolution than the iPad Mini. That's what counts, in terms of the display in comparison.

            2) You can get a Kindle Fire with a *larger* screen than the iPad Mini, and still spend less money on it, with even better resolution than the 7" Kindle Fire HD.

            3) The Kindle Fire HD *does* support full HD. You can play it in the exact same way you describe: It will either be letterboxed or the left and right cut off.

            4) The Kindle Fire HD has two actual antennae, not just two bands it can work on.

            5) Yes, the iPad Mini is lighter and thinner. If that's important to you, then the iPad Mini is a better choice -- if you're willing to pay that much for lighter and thinner.

            6) Really the only word you got right there was "plastic". There's nothing cheap feeling about the Kindle Fire HD. I have one right next to me.
            bhartman36
    • Amazon threatens no one

      They haven't been showing good financial results recently.
      polarcat
      • It would be foolish to count them out.

        People have been writing Amazon off since ~ 1998. That's probably not a great idea.
        bhartman36
  • Apple Can Cut the Price if Necessary, Like They Did on the 1st iPhone

    There's a lot of margin built into that $329 price, especially because they left out a high-resolution screen and they left out a GPS, both of which are a significant cost, and are present on the Nexus 7. They cut the price of the original iPhone by $200 when they determined that the price was too high. They can certainly cut $50-80 off the price of the iPad Mini if necessary. They were probably trying to not price the iPad Mini lower than the iPad Micro (iPod Touch).

    The iPad Mini is not much of a threat to the Nexus 7, since the two devices are targeted at different markets. With the Nexus 7 you get a tablet with a superior display, a GPS, dual speakers, and a USB port. It's an excellent device for traveling with pre-downloaded Google maps, or a GPS app with stored maps. It's also a good eBook reader with the higher pixels per inch. The iPad Mini can't perform these functions.

    The iPad Mini is primarily a content consumption device like the Amazon Kindle series. That said, it's hard to imagine anyone that's not already totally dedicated to Apple devices choosing an iPad Mini over the Kindle Fire HD 7".

    To many small tablet buyers, the presence of a GPS is an absolute requirement. To get that capability on the iPad Mini means spending $459, not $329, or buying an external Bluetooth GPS for about $100 (Dual Electronics XGPS150A). An external GPS is one more thing to carry and charge, though it does have some advantages as well.
    HarryDevlin
    • Couldn't Agree More

      There are far too many fan boys out there that speak nothing but bias for one company or the other. They don't realize that the iPad mini and Nexus 7 are marketed to a different group of people. Where I have an issue is that people are complaining about the extra 100 or so difference between the iPad and Kindle Fire. The group of people in the market for a small tablet most likely already own other kinds of devices and are not exactly strapped for cash. If the only thing you have to complain about is price my question to you is how much work really is it to earn that extra 100? The public needs to stop comparing specs and prices together. Figure out which device suits best what you're looking for and go buy it, don't start thinking "this other device has better specs and is cheaper". In saying this if youre looking for a more productivity based device you should be overjoyed as the nexus 7 is the clear winner and is on the cheaper end
      jchow1
      • With New Nexus Devices Apple Will Probably Have to Cut iPad Prices

        Just because someone can afford that extra $100 (or extra $230) doesn't mean that they are not going compare devices prior to purchase, and when the lower priced product is better choose that product.

        I see that Google announced a new Nexus tablet, the Nexus 10, with a higher resolution screen than the Apple "retina" display. $399, and of course it has a GPS even on the Wi-Fi only model. So a 9.7" 16GB iPad with a GPS is $629, versus the $399 price for the Nexus 10.
        HarryDevlin
  • Doesn't Apple, too?

    Doesn't Apple make money when customers use their product in the form of apps?

    Last I checked, developers have to pay a hefty fee to keep their apps listed, plus there are the large number of apps that are not free in which I thought Apple got a cut every time one was purchased. Oh... plus all that music/movies/videos that people download.

    (I realize that the majority of apps downloaded are free, but that shouldn't discount the fact that Apple still makes money on simply hosting the App Store/iTunes and cuts on all paid purchases)
    ikissfutebol
    • Apple users are much more likely to pay for apps than Android users

      With the Kindle, Amazon is expecting to sell content. Other than music, Apple doesn't sell as much content as Amazon.

      As to apps, Apple users are much more likely to buy paid apps than Android users. I went to an Android conference last year and there was one session on developing apps for both Android and iOS simultaneously. The basic advice was 'always do the iOS app first because users will pay for it.' On Android there are a lot more ad-supported apps which are more difficult to make money on. It will probably continue this way since Android is gaining market share while Apple is losing market share. The reason that iOS users are more likely to pay for apps is because they've gotten use to paying for things on the iTunes store. The Android user is more tech-savvy and is ripping their CD collection to high bit-rate MP3 files and transferring that music to their phone and tablet.
      HarryDevlin
    • iOS developers pay a $99 fee...

      I don't know if that's considered 'hefty' or not.

      Apple gets a cut from paid apps; they get nothing from free apps. They don't make money by 'simply hosting the App Store...' they make money when people pay for apps. That money covers the cost of hosting the store (and then some, but apparently not that much).
      msalzberg
  • More for less...

    That was the thing about the iPad mini launch, I was looking at the specs and it looks very retro.

    After harping on about how wonderful Retina is, they are pitching the mini against devices with near-retina displays and saying how wonderful a bigger display, with less pixels is. Talk about mixed messages. Are they now saying that all those people who bought Retina iPads are suckers? :-S
    wright_is
    • Apple's Commitment to Integers is the Problem

      Apple feels that every display must an integer multiple of earlier screens to make life easier on developers. It is true that the plethora of different size and resolution of Android displays are challenging for developers, but it's impractical to do otherwise.

      A 2048 x 1536 iPad Mini (326 DPI) would have been too expensive. A 1536 x 1132 iPad Mini (1.5 times the 1024 x 768 would have had a 245 DPI resolution).
      HarryDevlin
  • Patterns

    Expect Apple to apply an approximate 20% discount to the original iPad Mini when it gets refreshed to the iPad Mini 2 in 6 to 12 months. This discount would result in an original iPad Mini price of approximately $260 U.S.

    This is how Apple has dealt with competition from 10-inch form-factor Android-based tablets. Last-generation iPads sell for $399 U.S.
    Rabid Howler Monkey
    • That might be true, but in 12 months...

      ...there will be another Nexus and another Kindle Fire. And they will probably be lower in price.
      bhartman36
  • Who has margin problems?

    Wait, what?

    Apple just reported 40% margins last quarter.
    Amazon just reported -1% margins last quarter.

    Who has potential margin issues?
    Synthmeister
  • Hmmm let me think...

    Amazon Kindle for $199 - WITH Special Offers or $214 without Special Offers.

    Price isn't too bad. In fact it's great. However...

    Can the Kindle Fire HD access Nook books? No? The iPad Mini can. As well as Kobo and any other e-reader out there via an app.

    Most of the integrated movies, music, ect. that the Kindle can do so can the iPad Mini. Right now I'm still good with my rooted Nook Color but I have to say between the Nook HD, The iPad mini, and the Kindle Fire HD I'm torn... I'm invested in the iOS ecosystem and the Nook platform but I do like the Kindle Fire HD.
    athynz
  • Apple fans don't care about price.

    Apple customers are loyal and are willing to pay more for less and that is a fact and there is nothing wrong with that. Dismissing or coming up with why they are willing to pay more for an Apple product is just a psychological issue.
    oldgeek143