The Key To The Kindle Fire: It’s Not Taking On Apple Directly

To this point, the companies that have tried to challenge Apple’s dominance of the tablet market have failed in head-to-head comparisons when evaluating their price, application availability, hardware features, and elegance. By refusing to play Apple’s game in focusing on two main areas–price and content–Amazon (NSDQ: AMZN) might be in the best position to actually make a tablet breakthrough.

What Amazon unveiled Wednesday before a crowd of gadget enthusiasts has much more in common with its namesake Kindles than it does with the Motorola (NYSE: MMI) Xoom, Samsung Galaxy Tab, RIM (NSDQ: RIMM) Playbook, HP (NYSE: HPQ) TouchPad, or any other number of failed iPad competitors released in 2011. The Kindle Fire is designed to set a new floor for tablet pricing at $199 while still delivering all the books, music, and video you expect on a modern tablet device; that is, assuming it works as promised (Amazon flatly refused to allow anyone to actually handle the Fire, which is never a good sign).

And unlike Motorola and Samsung, the most prominent of the Android tablet vendors, Amazon decided not to leave its user experience in Google’s hands. The Kindle Fire runs Android, but good luck figuring that out from Amazon’s promotional pages for the device.

Instead of “Android apps,” Amazon promises the Kindle Fire can run “thousands of popular apps and games” from the “Amazon Appstore.” Amazon’s press release clarified that the Kindle Fire will run “all the most popular Android apps and games,” but shoppers don’t read press releases.

As Sarah Rotman Epps wrote earlier, this is not an iPad killer. Amazon is redefining what it means to be a tablet and an e-reader with the Kindle Fire rather than following the lead of the Android vendors and RIM, which have tried to poke holes in Apple’s armor by emphasizing things like the ability to run Flash content. That’s something the average user cares far less about than those companies might have once thought.

All that most people want to know about the gadgets they are about to purchase is what they can do. Amazon has already identified Kindle as a media-consumption brand through its huge catalog of books, and adding movies and TV shows to that arsenal is an easy sell.

Yet Amazon hasn’t neglected the fact that true tablets are actually mini-computers, and that people still want access to more types of information, games, and services than can be provided through apps or media players. That’s why the most interesting thing the company announced Wednesday (again, assuming it works) is the Amazon Silk browser, which upgrades the Kindle platform from the “experimental browser” (read: sort of works) to the Silk browser, which Amazon describes as ” a revolutionary, cloud-accelerated browser.” The average Kindle Fire user probably doesn’t care what’s under the hood, but Silk could be an interesting window into the mobile Web for Kindle Fire users and perhaps one of the few aspects of the Kindle Fire that could actually compete head-to-head with tablets offering greater horsepower.

Chris Espinosa of Apple also notes that Silk could give Amazon its own source of Web analytics data on the browsing habits of Kindle Fire users, since all traffic will have to go through Amazon’s servers. That’s the kind of stuff advertisers salivate over, especially if Amazon can match Web browsing data with actual sales data from its store: it could present what people are thinking about buying through their Web browsing and what people actually wind up buying on Amazon.

Most importantly, at $199, Amazon has chosen a price that only a company that’s not dependent on hardware profit margins can hit in 2011. HP showed that people would be interested in an iPad competitor at a rock-bottom price, but HP can’t afford to lose an estimated $200 on each Touchpad sold at $99 forever. By contrast, Amazon can afford to take a small loss on each Kindle Fire (and maybe even break even if the device takes off and volume discounts on components come into play) knowing that they’ll make a fair amount of money off of each Kindle Fire user from the sale of content and other items from Amazon’s store purchased via the tablet.

The story of the Kindle Fire’s impact on the tablet market won’t be written until mid-November, when the device launches just before the holiday shopping season and gadget reviewers can put it through the paces. But Amazon has taught other tablet makers a powerful lesson about trying to compete with the company that pretty much invented the modern tablet market.

Namely, while “good artists copy and great artists steal,” great businesses figure out how to match their current strengths with evolving technology. Amazon didn’t reveal a tablet; it revealed a mobile shopping kiosk and video player that will also let you play Angry Birds.