Amazon’s Tablet Price Strategy: Go Low(-er Than The iPad)

Here’s one way Amazon’s new tablet can compete against the iPad: Price. Nobody claims the iPad is cheap. And the Amazon (NSDQ: AMZN) tablet probably won’t be either, but it will cost less than the iPad, the NYT’s Bits reports.

According to a source who “works with Amazon,” the company is keeping the tablet’s price low by building it “with the bare necessities inside” (no built-in camera, limited memory). Another unidentified source, an Amazon executive with close ties to CEO Jeff Bezos, says Bezos decided last year that Amazon’s tablet would compete with the iPad on price–both of the device itself, and of the 3G connectivity.

The cheapest WiFi-only iPad 2 is $499, and the cheapest 3D model is $629–with prices going all the way up to $829 for for the 64 GB, 3G model. And those prices don’t even include the cost of the 3G itself; users have to pay for a separate monthly data plan.

Amazon, meanwhile, has demonstrated its ability to offer fairly low-priced 3G on its Kindles, with 3G models priced just $50 higher than WiFi-only models. And the 3G connectivity itself is free. Yesterday, Amazon announced that AT&T (NYSE: T) is sponsoring the Kindle 3G With Special Offers, allowing Amazon to drop its price to $139. Of course, Amazon probably wouldn’t cover the cost of a 3G data plan for a tablet. But it could find a way to work something out with AT&T, which said yesterday that “Kindle 3G is by far the fastest-growing connected device on the AT&T network.”

The Nook Color hasn’t been mentioned much in coverage of the Amazon tablet, but IDC recently reported that, in the first quarter of 2011, more Nooks were shipped than Kindles for the first time ever–thanks to the success of the $249 Nook Color. The Nook Color is WiFi-only and lacks many of the features of the iPad, but its relatively low price is clearly resonating with consumers who want some tablet functionality. Somewhere between the 3G-less Nook Color and the iPad lies a sweet spot for the Amazon tablet, and Amazon seems to be aware of that.