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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.

 

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* 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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6 Comments

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  1. Sergio Ferrari
    Great blog Eric. it’s really very interesting.
    Could you tell us the main reasons to say “it won’t make any inroads into big business” ?
    Is it due to the missing 3G? missing security? missing device management?

    Sergio

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  2. Tobias Hofmann
    And the Apple iDevices are what? Enterprise devices? They are made and sold as consumer devices. Gaining control over an iPhone means to jailbreak it, it needs iTunes, Apple can remotely de-install software. Fine grained security and device management were not on the list of features when Apple designed their iDevices. That’s not enterprise ready. People are bringing their Apple stuff to the company simply because Apple was the first one to sell them. Why shouldn’t people also bring their Amazon devices to work? If there is demand, Amazon will do as Apple did: making their devices a little bit more enterprise friendly.

    PS: Taiwanese are one of many that we have to thank for cheap electronic devices, but they are also responsible for 16hs workdays, low payments, environmental disasters and so on. #damncapitalism

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  3. Bjorn Vilhjalmsson
    The kindle fire is a device I can happily buy for my kids as their first tablet, something I would not do so far with other tablets out there.  I might get one myself once I get tired of my Nook Color, form factor is the correct one for me so I do expect the fire to be a huge success.  Amazon may be losing some money on the first batches of the fire (the first couple of million) but they will soon be in the black on consecutive batches plus their profits will soar with regards to sold content.  Win Win for content creators and amazon, loss for postal services.

    The effect this will have on other tablet makers is already showing with the HTC flyer now being sold for 299$ in the US.

    With regards to enterprises, I fully expect the window for apps to be closing very fast with web “apps” based on HTML5 being a lot easier to manage and cheaper as well then producing apps for all the different platforms.  One thing with regards to the Fire and it’s Silk browser is security or privacy of company data.  As Steven J. Vaughan-Nichols put it so elegantly, Silk looks to be very fast and about as private as a bathroom stall without a door. Of course this is not what enterprises need or want meaning in it’s current shape the Kindle Fire is not going to make any inroads into enterprises except perhaps as some type of training, education device.

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  4. Stephen Johannes
    It’s interesting that the tablet market is starting to look more like the video game console market.  I think Amazon is taking the tried and true approach of making up the loss on hardware for content profits just like Sony, Nintendo and Microsoft have done with their game consoles.

    Now we will have to also beyond looking at total soles for tablets, also evaluate the “attach rate”, which is how much beyond the tablet itself did we buy.  In other words can you get the consumer to spend multiples of the initial purchase price over the lifecycle of the product.  The only drawback of this approach is that the tablets won’t the get the luxury of a 5 to 10 year replacement cycle like a game console.

    Take care,

    Stephen

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