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Amazon Just Ruined a Huge Portion of the Tablet Market

The $199 Kindle Fire throws down a big challenge not just to the iPad, but to the entire segment of low-end Android-based FeatureTablets.

Jeff Bezos has the soul of a tightfisted Taiwanese factory owner. I hope I'm allowed to say this, being Taiwanese-American myself, and also because I say it in full admiration of Amazon's CEO for the coming $199 Kindle Fire tablet.

Let me explain. Taiwan and China's rise in the last two decades as the world's leading mass manufacturer for, well, almost everything, is due to the energy, discipline and, let's face it, penny-pinching ways of everyone in the supply chain, especially the factory bosses, who even in mainland China remain predominantly Taiwanese.

It's these guys, not Andy Grove or Steve Jobs, who do the dirty work enabling miracles like the fact that the today's computers cost the same as they did 25 years ago and yet are many tens of thousands of times more powerful.*

They do this by selling at razor-thin margins and betting on volume to eventually take them into the black. That's long been Bezos strategy, going back to the dot-com era when Amazon was growing like a weed but still losing money. So Amazon may very well lose $50 for each of the first several million Kindle Fires it sells, as various Wall Street analysts predict.

But at that bold price point, it is very likely to sell tens of millions of Kindle Fires. And, of course, there are those millions of Amazon e-books, movies and music downloads to sell you...

How bold is $199 for the Kindle Fire? Not only is it 60% cheaper than the $499 iPad 2, but it is 33% less than the now-$299 BlackBerry PlayBook (which debuted only 6 months ago at $499). The PlayBook, like the Kindle Fire, runs Android, is made by the same Taiwanese manufacturer (Quanta) and sports nearly identical hardware to the Kindle Fire, down to the 1 MHz TI OMAP dual-core processor. The Kindle will run Android apps on launch, while the PlayBook, based on BlackBerry's QNX OS, still cannot.

Six months ago, I predicted that the tablet market was set to split into three segments: A high-end enterprise segment with the Cisco Cius and the Avaya Flare, a media tablet segment with the iPad, PlayBook, Xoom, Galaxy Tab and others, and a 'FeatureTablet' segment comprising lesser-known vendors like Archos and Chinese off-brand Shanzhai makers, and limited-use e-readers like the Kindle or Nook.

Similar to FeaturePhones, I figured FeatureTablets would appeal to price-sensitive mainstream consumers, especially with their $100-300 price tags. They would mostly run Android, sport single-core ARM chips, relatively-short battery life (think 4-5 hours), inferior touchscreens (stylus, anyone?), and often a poor selection of apps (subsets of the Google Android Market or, in the case of e-readers, none at all).

The Kindle Fire throws gasoline on the whole FeatureTablet category and sets it ablaze. Why would you buy a cheap $140 Coby from Walgreens when for $60 more you can get what just 6 months ago was the most powerful tablet around? Especially when you'll get access to millions of e-book, video, music and even app content via Amazon's on-demand stores. Granted, these aren't free, but neither are most good apps.

Amazingly, the $199 Kindle Fire is Amazon's high-end model. Other more traditional (i.e. e-reader) models will be priced at $189, $139 and $109 (without ads - with ads pushed to you, they get as cheap as $79).

The Kindle Fire is strictly a consumer device. It won't make any inroads into big business. As Forrester's Sarah Rotman Epps blogged, "we won’t see companies like GE and Mercedes Benz deploy the Kindle Fire for their enterprises the way they have with the iPad." Nor do I expect the Kindle Fire to push Bring Your Own Device (BYOD) trend forward the way the iPad has.

And it is far from an iPad 2 killer, though I think it likely will accelerate Apple's release of a lower-priced iPad to compete with it (does $300 sound reasonable to you? Does to me).

While the Kindle Fire destroys the chances of most low-end makers, I think it will still accelerate the tablet market overall by introducing millions of people to them. These people will eventually add or trade up to more full-fledged tablets that they'll want to tote into work. In this way, many vendors will benefit, as well as apps makers, and the enterprise mobility market will continue to grow.


* The downside, of course, is some/many of these factories are sweatshops with terrible conditions, conditions bad enough that there were a spate of suicides at Apple's chief supplier, Foxconn, in 2010 and this year. On the other hand, most of these jobs pay far better than their alternatives, like farming.


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