Apple is on record today saying they aren’t worried about the Kindle Fire’s powerful and iPad like ramp to market. While the product is only expected to come close to half of the iPad’s expected sales, it represents the only alternative to the iPad that has sold at this level so far and I’ve personally seen people put aside their iPads for it. Steve Jobs is no longer running Apple and I can recall the Apple of the mid 90s blowing off Windows 95 with the same abandon, and I think Apple just may be making the same mistake again.
Kindle Fire: Fundamentally Different
First on Apple’s side of this is the correct belief that the Kindle Fire is a fundamentally different product. While both products are kind of a cross between a laptop computer and an old iPod Touch, the Kindle is more iPod and very focused on doing a few things well and the iPad is almost a laptop. The size, price, and functionality of both products are very different and while an iPad could replace a Fire, doing basically everything the Fire does, the Fire can’t do the same.
In short, many people can leave their laptop behind and carry an iPad, albeit with some major tradeoffs, I doubt many are even trying to do the same thing with the Kindle Fire. On the other hand, for the person that needs something with a larger screen for media than their smartphone, or doesn’t have a Smartphone, and can’t replace or doesn’t need a laptop, the Kindle Fire is likely a better choice.
In a way, it is almost like comparing a Smart Car or motorcycle to a large sedan: great as a second vehicle but few would want to live with one. On the other hand, many actually do and we certainly saw Honda grow from being a motorcycle vendor into a credible sedan builder.
What Defines Success
For both products, what makes them better isn’t the hardware or even the software. The Dell Streak was equivalent to the Kindle Fire in hardware but it didn’t sell well, and the market is awash with iPad clones that mostly don’t sell well either. What people are buying are things like iCloud from Apple and the Amazon experience with the Kindle Fire. Here the two companies are surprisingly close in capabilities, with Amazon stronger as a retailer and Apple far more complete in total services but both strong with content.
With the Kindle Fire Amazon has shown that while it isn’t yet fully equivalent to Apple it is close enough for the millions buying the device and at a much lower price point they can be competitive. One other aspect, because Amazon uses the Fire as a store front end they may actually end up making more money from the product long term than Apple can with just App stores and accessories because Amazon could make money off more stuff as a general retailer. No other vendor, other than Apple, currently has this same secondary revenue opportunity nor as complete a back end set of integrated services.
Given this is the fourth quarter and that means folks are buying gifts for others, I think it likely that many are looking at the relative price of the two products and concluding that for every two iPads, you can buy you can get five Kindle Fires, and this is a very tight market. However, once out of this window, I expect Apple will be generally right and that folks that want one of the two products will find the other inadequate. But it should be obvious that Amazon will want to move up-market with their device and that Apple will resist moving down market with a cheaper product to hold onto higher margins. In a way, they are already in the $200 range with the iTouch, which used to be called the iPod Touch and seems to be evolving into the iPad Nano. But it is too small and, as a result, not that competitive to the Kindle Fire except in price but it could become a place holder for something larger.
In short, up until the Fire shipped, it looked like Apple had done to the Tablet market what they did to the MP3 player market with the iPod, but the Kindle Fire broke the market open and now that dominance is at risk.
Up until the Kindle Fire shipped, there was some doubt whether anyone could do a product that was as complete as the iPod/iPad/iPhone, and suddenly that doubt is gone. If Amazon moves up market, they appear better matched to Apple than any other Apple competitor in recent years, and this means they do represent a very real threat. I doubt, regardless of what Apple executives are saying, they are ignoring this threat either but they have until next year to fully respond to what is the first truly competitive threat that Apple has had for the iPad/iPod family of products since the iPod was first announced. 2012 should be an interesting year for both Apple and Amazon.
President and Principal Analyst, Enderle Group
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