September 27, 2011, 11:29 AM

Amazon aims to set the tablet world on Fire

Amazon.com has introduced the Kindle Fire tablet, a competitor to the iPad.

Lead Photo

Amazon.com Inc. will try to succeed where others are failing, taking on Apple Inc.’s iPad with its own tablet computer, dubbed the Kindle Fire.

The Kindle Fire runs Google Inc.’s Android mobile operating system, lining up with Amazon’s existing Android app store. The device is nearly half the size of an iPad and has a 7-inch touch-screen, compared with the iPad’s more spacious 10 inches. It features 8 megabytes of memory compared with the iPad basic version’s 16 megabytes. However, the Fire connects to Amazon Cloud, the web hosting service where Kindle owners can store all their digital content at no cost. Apple offers a similar service, called MobileMe, for owners of all Apple mobile devices, but for a monthly fee.

The Fire is pre-loaded with an Amazon.com Android shopping app on the home screen, an app tailored to fit the 7-inch screen. The app enables consumers to shop Amazon.com’s entire catalog of products, physical and digital. The Fire also comes with a one-month free trial of the Amazon Prime two-day free shipping service. Amazon is selling the Kindle Fire for $199, considerably lower than the $499 for the iPad 2.

“We are building premium products and offering them at non-premium prices,” Amazon CEO Jeff Bezos writes in a letter on Amazon.com today.

Some analysts are prediciting healthy sales when the Fire begins shipping November 15. Baird Equity Research says Amazon.com will sell between two and three million Fire tablets by year's end and between four and six million in 2012.

"While we think the Kindle Fire could easily be the most successful Android-based tablet to date, the November 15 launch date, and the possibility of issues with ramping production—Apple encountered significant production issues with the iPad 2—are the key reasons we are maintaining our current tablet estimates," writes Colin Sebastian, an analyst at Baird Equity, in a research note. "However, we think there could be upside to our 2012 estimates, but we will review this at a later point."

While the Fire is less expensive than the iPad, it is not the same machine. The iPad can have far more memory built in and features a more powerful processor. And size may matter. Tablets are devices aimed at multimedia, and buyers may find the larger iPad screen more enticing when it comes to browsing the web and watching movies and other video content. On the other hand, tablet purchasers may find the greater portability of the Fire more tempting. And the lower price figures to make Amazon’s tablet attractive to a broader audience.

Amazon clearly is responding to consumer demand for tablets. Apple, for example, has sold 29 million iPads since the tablet launched in April 2010. “There’s no reason to think a color Kindle wouldn’t do well,” says Avi Greengart, research director for consumer devices at research and consulting firm Current Analysis Inc.

The Fire will enable Amazon to carve out its own space in the digital media world, as Apple has done with iTunes, iBooks and the App Store, Greengart says. “Amazon has a whole suite of services that it could use a color Kindle to promote,” he says. “A color Kindle tablet would be a vending machine for music, books and videos.”

Apple relies on hardware sales to drive Apple-supplied digital content—it’s a hardware manufacturer. Amazon, on the other hand, focuses on digital content and services to make its profits in this segment of the mobile market, Greengart says. “I don’t see why Amazon would want to create a general-purpose tablet to compete against Apple in hardware,” he says. “On the other hand, if the device promotes their own services, it does make sense.”

Amazon, No. 1 in the Internet Retailer Mobile Commerce Top 300, and Apple, No. 2, did not respond to requests for comment.

Amazon.com has an advantage in the wide variety of digital content it sells, says Sarah Rotman Epps, an analyst at Forrester Research Inc., in a report entitled “Amazon Will Be Apple’s Top Competitor in Tablets.”

The Amazon Fire may catalyze sales of Amazon’s deep library of multimedia content in the same way that launching Kindle ignited e-book sales, Epps says.

Amazon’s overall media sales, including digital and physical content, accounted for $3.7 billion, or 37% of Amazon’s net sales in the second quarter, with year-over-year media sales growing at 27%, Epps says.

The Kindle Fire has extremely attractive elements that may keep retailers up at night, says Fiona Dias, chief strategy officer at ShopRunner, a free shipping membership club that competes with Amazon Prime. She cites the $199 price and Amazon Prime enticement, and says the small, portable size will make it easy for shoppers to compare prices in stores. “All in time for the critical holiday shopping period,” she adds.

Some experts believe Amazon.com can make gains in market share of digital content. Baird Equity Research says Amazon owns 50% of the e-books market and that it wants to grow that share so it can be to e-books what Apple's iTunes is to digital music. ITunes, Baird Equity estimates, controls 70% of the digital music market.

"We believe that Amazon is looking to achieve a similar dominance in the larger overall e-book market," Sebastian writes. "We think the Kindle Fire will help Amazon extend its market share in the e-book market, while simultaneously furthering its objectives for other digital media such as movies and music."

Amazon made three other Kindle announcements today. It has reduced the price for its basic Kindle e-reader to $79. It has introduced the Kindle Touch, a $99 touch-screen version of the basic Kindle. And it has debuted the Kindle Touch 3G, which adds 3G wireless connectivity to the basic Wi-Fi offering, for $149. Best Buy announced today it will be selling all four new Kindles this holiday season.

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