Kindle Fire 2: Disrupt the Nexus 7 or get out of the way

This year has been a difficult one for Amazon so far. The company reported a paltry second quarter earnings of $7 million on revenue of $12.83 billion, with a significant operating loss projected for Q3.

To make matters worse, sales of their flagship 7-inch tablet computer/ereader device, the Kindle Fire, fizzled after the first months of sales during the first quarter of 2012. 

And now Google has encroached on this territory with their $199 Nexus 7 tablet, which packs a lot more CPU, graphics and display horespower into a similar 7-inch device, and can run all -- if not more applications the Kindle Fire can, including the ability to use e-reader applications from Google, Barnes & Noble and Amazon itself.

What is Amazon going to do for a follow-up act?

Right now the current Kindle Fire is selling at $199, the same price as the base-level Nexus 7. So the first thing the company needs to do is get rid of existing inventory. Selling the current model at $149.00 or less to Primes or any other Amazon customer to prepare for the next product launch during the 2012 holiday season is probably a prudent thing to do.

The Kindle Fire needs a considerable horsepower boost in order to remain competitive. Right now, it sports a dual-core TI OMAP 4430, which is considered to be on the low end of tablet and smartphone SoCs. The next device needs a quad-core SoC with a powerful graphics processor, such as the Tegra 3 used on the Nexus 7 and other mainstream Android tablets. 

The Kindle Fire also lacks a camera for video conferencing and it's also missing Bluetooth and GPS, all three of which exist on the Nexus 7. Granted, I've found the camera and the microphone on the Nexus 7 to be completely unsatisfactory for using Skype and other VOIP/video conferencing apps, so anything Amazon can do to upstage Google and other manufacturers on this front would be well-received.

The Kindle Fire display is also outdated -- its 1024x600 pixel IPS is inferior to that of the Nexus 7, which has a 1280x800 resolution. Right now the Nexus 7 actually displays text better than the Kindle Fire on Amazon's own e-reader app, which is a bit of an embarrassment.

For consumers wanting a tablet that is also a superior e-reading experience the Nexus 7 is just a plain better device and a better value right now. If I were Amazon, I would not just match the Nexus 7 on display specs with the Kindle Fire 2, but considerably exceed it, because I expect that there is a reasonable chance that Apple is also going to enter the 7" tablet market.

If the iPad 3's display is of any indication, an "iPad Mini" would also have a very sharp, high-resolution display.

Of course, there is also the issue of content. One of the main advantages of owning an actual Amazon-branded Kindle tablet over using a Kindle app on another manufacturer's device is that you get seamless access to their content.

And perks such as the Amazon Kindle Owners Lending Library and free access to videos for Prime members are a big plus. But Amazon needs to continue to expand the library of free content for Primes if their new device is closer to a parity move rather than a considerable upgrade from a Nexus 7 or other 7" tablet. 

Of course, it begs the question if Amazon can actually up the ante on their own hardware given that they have demonstrated that all the Kindle Fire is good for at the moment is losing money. It may make more sense to cut their losses and partner with an existing hardware OEM like Samsung, much like Google has done with ASUS for the Nexus 7.

Samsung would be an ideal partner for Amazon, since they are a Tier 1 component manufacturer for SoCs and also for displays and memory. And they also produce their smartphones and tablets which could easily be "Amazonized".

Given Samsung's difficulties in trying to participate in the official Android ecosystem by playing the software update and smartphone flavor of the month game, and being thrown under the bus by Google since the company's acquistion of Motorola, the South Korean electronics giant may be receptive to a "Come to Bezos" moment.

And if a partnership with an OEM is not in the cards, Amazon may wish to consider exiting the tablet and device market entirely, and focusing on creating apps that deliver content as well as their Appstore for use on 3rd-party devices, which is a far more profitable business.

What features should Amazon concentrate on for its next Kindle Fire? Talk Back and Let Me Know.