How the Kindle Fire and the Nexus 7 harmed the tablet market

How the Kindle Fire and the Nexus 7 harmed the tablet market

Summary: By aggressively slashing prices, Amazon and Google have irrevocably harmed the tablet market by creating unrealistic price expectations.

01-08-2012 11-18-52

Things are not good over at Amazon.

The company pulled in a second quarter earnings of only $7 million on revenues of $12.83 billion, and the company expects the third quarter to be worse. It was also revealed that sales of the 7-inch Android-powered Kindle Fire tablet have slowed down significantly following the initial frenzy when the tablet first hit the market.

Amazon's Kindle Fire tablet came from nowhere to capture more than 50 percent of the Android tablet market. Much of the success of the tablet was put down to the price -- a highly competitive $199. Despite the recent fall in sales, the Kindle Fire continued to be Amazon's best-selling item during the second quarter, but now that Google has released competition in the form of the Nexus 7, this may well change unless Amazon can get a new Kindle Fire -- speculatively called the Kindle Fire 2 -- out of the door quickly.

ZDNet's Jason Perlow believes that the problem with the Kindle Fire is that the hardware just isn't sexy enough in the face of the Nexus 7. He believes that Amazon should bring to the table a Kindle Fire 2 with a more powerful processor, a better screen, a camera, Bluetooth, and GPS capabilities.

While I'll agree that it's time for the Kindle Fire to get an upgrade -- the current device was released November 2011 and has now been eclipsed by the Nexus 7 in terms of hardware -- bumping the hardware is unlikely to be enough to rekindle interest (pun intended) in the cheap Android tablet.

What's happening to the 7-inch tablet market is what happened to the PC market several times. Big name desktop PC OEMs, realizing that consumers didn't care about megahertz and megabytes -- yes, that long ago -- turned to a price war in order to keep sales buoyant. The same thing happened with notebooks -- although by now CPU speeds were measured in gigahertz and RAM in gigabytes -- and then later with netbooks.

Price becomes the differentiating factor, and this in turns competition into a race to the bottom. Who can make the cheapest device wins.

Prices start out at a premium level, but these were quickly, repeatedly and enthusiastically slashed until margins became razor thin and there was little room left for the OEMs to do anything but hope -- and perhaps pray -- that people would buy hardware.

Slashing product prices cuts profit margins, which in turn means less money to innovate.  

The truth is that while people like Perlow and myself love new and better hardware, the mass market can't explain the difference between a dual-core and quad-core processor, or a 1024x600 screen from one running at 1280x800.

The mass market cares only about two things: price, and seeing their purchasing decisions affirmed by others.

Price is a metric that most people know and understand because it's nowhere as ethereal or complicated as CPU power or screen resolution. Given a $199 tablet next to another for $299, the $100 difference in the price tag will catch the eye before anything else.

But if price is such an important metric, why is the iPad -- with its premium price tag -- so popular?

Simple, it was the first tablet to go mass market, and after cumulative sales of around 85 million, Apple's tablet can be found in the hands of millions of people. This gives the tablet credibility in the eye on potential buyers and sells it better than any ad campaign could hope to achieve.

People love seeing their buying decisions affirmed by others, and if they're seeing lots of others using the same device that they've chosen, they're getting affirmation in spades.

If Amazon is heading for a third quarter crisis, then that doesn't give the company an awful lot of wriggle room when it comes to spending more on hardware while keeping the price fixed. And that's the inevitable problem with aggressive price cuts. It happened to the desktop PC industry, notebooks PCs and then netbooks. Margins then fell to a point where innovation stagnated which in turn led to the problems that the PC industry currently finds itself in.

So the problem with the Kindle Fire -- and the Nexus 7 -- is the same problem that's plagued the PC industry. Deep and extreme price cuts give the makers no wriggle room to innovate. There's no doubt that a $199 was an attractive price point for a tablet, but it's possibly that it was unsustainably low, and that by driving prices down to this level so rapidly, both Amazon and Google have irrevocably harmed the tablet market by creating unrealistic price expectations. It's quite likely that these impracticable price demands could harm Microsoft and its tablet ambitions.

There is no shortage of pundits who believe that Apple should itself be venturing into the 7-inch tablet market with its own low-priced offering. However, given that the wheels may have fallen off Amazon's juggernaut, that advice may have been somewhat premature. Given Apple's sales and profits, I think the company doesn't need to follow the likes of Amazon and Google into such a cut-throat, competitive market.

Topics: Amazon, Android, Apple, Google, iPad, Tablets

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  • I'll Gladly Pay more for Quality

    After my miserable Android Experience I was not even looking at a tablet with Android on it. Went with the iPad and couldn't be happier.

    Then there's the ecosystem - the iOS ecosystem is just much better and more mature than the Android one. I can walk in to Best Buy and buy 100 speaker docks for an iOS device. Many have remote control capabilities. The AppleTV is a compelling accessory for an iOS device. I can use the same connectors as my iPhone. iOS gets the apps first and they are often better than their Android counterpart.

    A friend was looking for a tablet and was set to buy the Fire. Asked me and I said go for the iPad - yes it's expensive but it's a much better device for the reasons I listed above. They got it and love it.
    • Saying you would not buy a Nexus 7

      because of your experience with older Android tablets is like not buying an iPad because of your experience with an Apple Newton in 1994. If you haven't used Jelly Bean, you can't comment on this. Early versions of Android sucked. Jelly Bean is the best mobile operating system on the market right now. This is not a slight against Apple but they need to catch up and they probably will.
      • Why Go back?

        Why would I go back to something that I didn't find good? I've seen Jelly Bean and there's nothing that great about it. Definitely nothing a game changer (and you can say the same about iOS 6) and nothing to make me say "I want Jelly Bean" or an Android tablet.

        The way Apple's stuff just works well together is something sorely lacking in Android.
        • "Go back?"

          Jelly Bean is relly only available on one device, which itslef has barely been available for a week or two. And your first post was talking about how you only use iPd. So, I call serious BS on this claim that you've seen Jelly bean, and can really say anything about it.

          Look, you love your IPad. that's fine, I'm glad. I'm no fanboy and actually think two competing ecosystems is healthy, so I want to see BOTH succeed. I actually OWN both. But please, spare me that you know anything substantial about Jelly Bean, let alone enought to dismiss it completely, without reservation. As I said, I'm not a zealot/fanboy with my emotions in one camp. Which is why I get annoyed when I see peopel like you, who clearly are, spouting misinformed stuff like this.

          So you know someone who got the iPad and loves it. So do I. But I also know people who got the Nexus 7 and love it. Is that some kind of statement that the iPad is bad . DUH, of course not. So stop acting like someone loving their iPad == android sucks. I'm TIRED of listening to fanboys like you do that. Could it actuallybe POSSIBLE that (gasp!) BOTH devices are good?!?
          • No... Not possible...

            It would be nice if both were good, but they are not... The Nexus 7 lags and stutters... And considering it has a lower quality and smaller screen, well that alone speaks volumes... The Nexus 7 is not a pleasant user experience...

            And then there is the fact that it is a Roid... Malware, malware, malware, tweaking, tweaking, tweaking, and poor app selection compared to Apple... The Kindle fire is no better... Owning either is like having a needy gold-digger girl friend with a hot body but just isn't all that pretty and has an irritating whiny voice that grates on you like fingernails on a chalk board... Sure she has a hot body and you wish she would just shut up and be naked all the time but she won't shut up and is constantly whining about the dumbest stuff that no one cares about...

            Apple is where all the developers want to be anyway... Developers are getting so frustrated with android users pirating their wares that some have just taken to giving the apps away for free... In the future, do you think they will release new apps for Roid or Apple? Roid users are actually driving developers away from the platform they worship.

            I'm tired of listening you phony closeted apple haters claim that you are not biased when you clearly are... The shine has worn off the Nexus 7 and now everyone is hearing about how it's no iPad and it doesn't come close to quality nor user experience... It’s like having to deal with your friends meeting your whiny gold-digger girlfriend, and they are being brutally honest.

            Adrian adds to all that we already know and is making a perfectly valid and keen observation that these wannabe iPad makers are shooting themselves in the foot by releasing cheep wannabe iPad knockoffs at a price point they can’t sustain so they are not only setting themselves up to fail, but they are (gasp!) hurting current and future competition at the same time… And that my closeted non-friend is bad for us all... Again, It would be nice if both were good, but they are not.
          • Nexus 7 is a way better offering...

            I have not used an iPad for long periods of time. Hence I do not have anything to comment about it.

            But I have a Nexus 7 user for a while now and I am really liking it. I have been using Google services for a while, hence it made perfect sense for me to get the Nexus 7.

            I am not a fanboy. I did not buy any other tablet with Android on it.
            Jelly Bean is a far better OS at this point in time, atleast the best of Android.

            Nexus 7 is the perfect tablet. I can handle it with one hand at any point in time. I can sideload a keyboard app into it if I need to (which I did) without Jailbreaking it.

            It is setting a standard for 7 inch tablets.

            There is no stuttering. Where did you get that idea? Have you had any personal experience with stuttering on Nexus 7? Do not use someone else's comment as your own.

            I expect Google to carry forward the Nexus brand further...
          • Yes, but....

            Adrian's observation is nothing about the quality of either device, or the ecosystems, or the OS. His excellent observations are about two things, price and affirmation of purchase decision.

            "I know X number of people who have iPads and love them."

            This is the affirmation. It isn't about which is best, it is about feeling good about what you purchased, feeling that you didn't make a mistake in purchasing it Though it isn't really something that Apple is doing, it is part of the customer experience. Customers have a good experience with their iPads, because they feel they did not make a mistake because they see so many other people enjoying their iPads.

            Now, at this point I could make comments about sheep, you feel the need to have an external justification of their purchase, rather than determining on their own if they made a good purchase, but just having mentioned it will be enough, I am sure you could write the rest yourself, even if you don't believe it.

            The real point here is that Amazon and Google are reenacting the problem created by Dell about 5 or 6 years ago. Dell had just become #1 in the PC industry (just before HP reclaimed that position) and they decided to cut prices and see if they could drive some competitors out of the market. I was working their at the time. They succeeded, but now they are near to going under, because of the problem they created.

            When you drive prices down, the hope is to kill all or most of your competitors and then raise prices afterwards and return to profitability. Unfortunately, they created the expectation that PCs were cheap, and there are still enough competitors to keep prices at that level. Only Apple has the sort of brand loyalty to keep prices up.

            However, kudos on your conclusion, which is absolutely spot on, except for one thing.

            Both Amazon and Google expect to make a profit on content sold through the devices. We don't know yet how that is going, but according to Amazon's profit statements, not well.
          • Thats rubbish

            I know someone who is a long time iPhone and iPad user, recently bought a Nexus7 for his wife and is seriously considering switching to it himself because it is so good.
          • wrong

            My nexus 7 does not "lag and stutter" at all (running android 4.2). I have lots of apps installed, have many open at once, and almost never reboot it, its been very smooth. Can we stop spreading this "android is laggy fud"? Since jellybean its been quite smooth.
        • reason


          If your logic was used in the everyday world our streets would be lit by gas light and we would be riding horses bareback.

          We change with technology and to say you won't change because the IPad does what you want is intellectually dishonest.
      • Not really

        I have had every iPad to date. I have also had the galaxy tab and just got a nexus 7 last week. Now while I like all tech and I am very open minded to all operating systems. Jelly bean is not that much of a improvement and neither is the nexus 7. On day one the nexus had volume problems and the screen was coming off the case. After fixing the screen myself by tightening the screws I was able to really check it out. Jelly bean is a little better but it's the same old thing with previous android. There is still lag, random apps and the os itself closing on its own. Chrome crashing and I have to add apps for simple things like having landscape and 3 other things that normally are standard things on tablets and phones now. Even on the iPad which people say is a walled garden. Very sad I'm starting to get sick of android and reading as many blogs as I do lots of others are as well.
        • Macboy15... Really??

          I remember you from BGR's old wild west comments-section. As I have said before, Macboy15, says it all. You have been bashing Android, Google, and any other OS that does not begin with an "i", since the original Moto Droid dropped. Your post is invalid pal.

          I call COMPLETE AND UTTER BS!!
    • Almost agree with all of this...

      ... except the bit about connectors. Android devices almost all use USB connectors, which makes them as near to universal as you can get these days. And Apple's iPod/iPhone/iPad connectors aren't quite as universal as they should be, as my son found when trying to charge his iPod Touch from a standard iPod charger - got a device not supported message, which you don't get with Android USB devices.
      • "device not supported message"

        That message can happen anytime there is not a good connection or the cable integrity has been compromised and it is not passing enough current.

        And since I see the connectors for the iDevices' everywhere, I'm not sure how much more universal you need them to be.
        • He's charging it wrong

          Got it, the user is to blame.

          "I'm not sure how much more universal you need them to be."

          I'm really looking forward to Apple's new connector. You know, the one where Apple uses DRM to force you to buy your connectors from Apple at 3 times the price.

          Universal: defined to mean that you can buy them from any store in the Universe (as long as that store is owned by Apple)
    • I agree, I'll gladly pay more for quality

      That's why I'm waiting for MS Surface instead of buying the iPad 3.
      • I have to ask this question, Todd

        As you know from my previous posts, I am planning a Surface Pro purchase next year. (I decided that I don't need the ARM based Surface RT tablet since I have an iPad 3 already.

        I state that only to go on record (for the umpteenth time) that I am not biased against the Microsoft ecosystem in any way.

        And because I can now frame my question to you in a better light. Has your iPad 2 failed to meet any quality or performance expectations you demanded of it since you purchased that tablet?

        I ask that question because your comment implies a quality issue with the iPad 2 that would leave you desiring a better quality experience from a Microsoft product.
        • Sure, I'll answer this question again

          If we were to ignore the keyboard issue, I think I would probably give the iPad 2 a 8/10. It loses 2 marks for the bland UI. Sure, the UI "gets out of the way" which is good but the UI also does absolutely nothing to help me get my job done. I have to fight with the UI to get any information. That is why Metro, and even Android, have far superior UIs.

          I remove the keyboard issue because many people have no interest in using a keyboard with their tablet so it isn't fair to ding the iPad on a "feature" that many people don't care about. I also mention iPad 2 because that is what I have. After having looked at the iPad 3, I would give it a 1/10 if the prospective buyer already owns an iPad. It would get the same 8/10 if the prospective buyer has no tablet and doesn't care about a keyboard.

          However, for anyone who wants to use a keyboard, the iPad gets a 3/10. All the keyboard solutions are frankenstein solutions that simply don't work well. I have the Logitech-Zagg keyboard case. The form factor is fine for when I'm sitting at a desk but it is clunky and awkward when I'm out and about since there is no convenient place for me to put the keyboard when I'm not using it. There is something also horribly wrong with the bluetooth since I get frequent repeated key presses. Logitech blames Apple. Apple blames Logitech. I just get the runaround because this is a frankenstein solution and the companies just blame each other. It also takes about 5 seconds after my first key press to reconnect the bluetooth after I wake the iPad. To sum up: using a keyboard with an iPad is an extremely frustrating experience. It leaves me very frustrated with Apple.

          MS Surface aims to solve every single one of these issues. Will it succeed? Don't know. We'll have to wait until October to find out. At least it appears that MS is trying to solve the problems that I'm facing with the iPad and that leaves me feeling appreciated by MS. As appreciated by MS as I feel frustrated by Apple.
          • Viewsonic gTablet

            So, the Viewsonic gTablet may have other problems, but it has the advantage when using a keyboard, because it has a full size USB port. I have tried 2 or 3 different keyboards, and a couple of mice and they all work perfectly. No pesky Bluetooth problems for me.

            I only bring this up because of the discussion of keyboards and what seems to be a problem with using the Apple with a keyboard/case. I have heard of other problems as well.
          • Amazing, you feel appreciated my MS

            Are we supposed to be surprised? I have no way of knowing if your experience with the keyboard for your iPad is true or not but I know a number of people with different keyboards for the iPad who love them. To each their own. What I find interesting is that all of the sudden now that MS is including a keyboard the options for the iPad are an issue. Of the hundreds of blathering anti Apple posts of yours I have read I done recall you ever making this complete. Just seems way to convenient that MS is coming to your rescue on something that has never been an issue before.

            I do agree that there isn't much of any reason to upgrade from an iPad 2 to an iPad 3. I did only because my wife wanted my iPad 2 so it was still going to be used and we would be buying another anyway. From an iPad 1 to an iPad 3 definitely.