In its second-largest acquisition, Amazon buys the company for $970 million.
And it’s the only serious competitor to the iPad, one expert says.
Amazon.com Inc. still has that golden touch. Its Kindle Fire tablet computer in February owned 54.4% of the market for Android tablets, well beyond its nearest competitor and up from 29.4% in December 2011, web and mobile measurement firm comScore says.
The Samsung Galaxy Tab came in second in February 2012 with a market share of 15.4%, down significantly from 23.8% in December 2011, comScore says. Following are the remaining Android tablets, their February 2012 share and their December 2011 share:
- Motorola Xoom, 7.0%, 11.8%
- Asus Transformer, 6.3%, 6.4%
- Toshiba AT100, 5.7%, 7.1%
- Acer Picasso, 4.3%, 6.0%
- Acer Iconia, 2.1%, 2.8%
- Dell Streak, 1.3%, 2.2%
- Lenovo Idea Pad Tablet K1, 1.2%, 0.7%
- Sony Tablet S, 0.7%, 0.9%
- Other, 1.6%, 8.9%
One big reason why Amazon is doing so well may be price: At $199 it’s one of the lowest-priced tablets on the market. Amazon may be gaining an edge here by selling under cost—$15 under cost, Gene Munster, senior research analyst at investment firm Piper Jaffray & Co., tells Internet Retailer.
Munster studied multiple “tear-downs” performed by electronics specialists, who took apart the Kindle Fire and added up the cost of all the components. These specialists concluded Amazon was selling at a small loss or just breaking even. Munster also talked with a major electronics company—he declines to reveal the name because the discussion was confidential—and the company said Amazon was selling at a $40 loss. Munster balanced the various estimates to come up with his $15 loss figure.
Amazon, however, will turn a profit on the Kindle Fire if each consumer who buys one also buys just a few e-books from Amazon, Munster says.
“Amazon only has to sell about four books per Kindle Fire user to turn a serious profit,” he says. “The other motivation for Amazon is to create something people not only use to read e-books but to buy more stuff from Amazon. And when you have a tablet computer in your hand all the time, it is especially easy to buy online.”
Amazon can afford to sell hardware at a loss because, unlike its Android competitors, Amazon has a digital ecosystem of e-books, movies, apps and music built around the Kindle Fire that allows it to make money in other ways, experts say.
“Amazon is not expecting to profit off hardware sales, but is instead looking to profit off digital content—apps, e-books, movies—purchased through the hardware,” says Peter Han, analyst, consumer devices, at mobile technology research and consulting firm Current Analysis Inc. “The Kindle Fire is one of the more popular Android tablets because its lower price point appeals to price-sensitive consumers.”
There actually are a number of Android tablets priced below $199, but they were rushed to market, not fully thought out, and running on outdated versions of the Android operating system, Han says. “Now with the success of the Kindle Fire we’ve seen a shift in tablet strategy from Android vendors,” he says. “Manufacturers are now testing different display sizes, different memory configurations and different price points.”
But the efforts of other makers of Android tablets might be all for naught. Munster says it’s a two-horse race in tablets: the iPad versus the Kindle Fire. The two have and will maintain 90% of the market, he predicts. This is based largely on the digital ecosystems the two tablets have and the low price of the Kindle Fire. Munster estimates in Q4 2011 70% of tablets in use were iPads, 20% were Kindle Fires and 10% were other Android tablets. He says by Q2 2013 75% of the market will be iPads, 15% Kindle Fires and 10% a handful of remaining Android tablets. He says the iPad will gain market share from the expected launch in March 2013 of a smaller version of the iPad, he says.
Amazon has not revealed the number of Kindle Fires it has sold, but some estimates put it at six million in Q4 2011. The Fire was unveiled in mid-November. By comparison, Apple Inc. sold 11.8 million iPads during its fiscal second quarter 2012 ended March 31, a 151% increase over the year-ago quarter, Apple reports.