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Best aspect of Kindle Fire? 7-inch tablet price pressure

After months of rumors, Amazon (s amzn) outed its tablet entry this week: the Kindle Fire is available to pre-order now, with delivery expected on Nov. 15. The slate looks simple yet powerful, and is backed by Amazon’s large media content library for books, movies, music, television shows and magazines. Plus it runs Android(s goog) applications specifically curated for its AppStore. The most impressive feature, however, may be the price.

For $199, customers get a light, thin 7-inch tablet that runs for 8 hours on a charge and is easy to tote. There’s no mobile broadband connection, but the device does have a Wi-Fi radio. Internal storage is a relatively meager 8 GB, which is supplemented by unlimited Amazon cloud storage for Amazon content.

The Fire has no camera, which also helps keep the costs down; IHS estimates each Kindle Fire costs $191.65 for materials, plus another $17.98 for manufacturing. Effectively, Amazon is selling each Kindle Fire at a small loss, expecting to turn profits on the sale of digital content and physical products bought from Amazon via the tablet.

Effectively, Amazon has created a 7-inch tablet that offers a large percentage of the same functionality found in competing tablets, but has done so at a much lower price. I expect the $199 price tag, in combination with Amazon’s content ecosystem, to generate a large amount of tablet sales for the company; especially when compared to much more expensive alternatives. But those may not be expensive for long.

HTC makes a solid 7-inch slate in the Flyer; it runs the full version of Android 2.3, made easier to use by the addition of HTC Sense, a custom software layer. But the Wi-Fi version up to now has been priced at $499 since it launched. That’s the same price as a 9.7-inch Apple(s aapl) iPad which boasts a larger content ecosystem. Best Buy (s bby) is permanently cutting the HTC Flyer cost to $299 starting Oct. 1, making it more price competitive.

Research In Motion’s(s rimm) BlackBerry PlayBook is another 7-inch Wi-Fi device; in fact, the Fire looks much like the PlayBook both inside and out. But the PlayBook, too, launched with a $499 price tag and is currently available for the same $299 as the HTC Flyer due to a recent price drop. Price isn’t the only reason the PlayBook isn’t selling well; the device is missing key functionality such as a native email client for those without BlackBerry handsets. Even if it was feature complete, the market won’t support a $499 tablet with a 7-inch tablet.

The PlayBook price cut took place prior to the Kindle Fire launch, while the Flyer price drop was just announced today and is likely in response to Amazon’s $199 tablet, at least in part. Cutting the cost can also help move inventory that’s piling up. We saw just that scenario with a $99 fire sale of HP TouchPads last month, for example. And that’s telling: even with missing features or fewer applications available, consumers are willing to pay $99 for decent tablet hardware from HP(s hpq) or others.

At $199, Amazon just set the bar for 7-inch tablet makers. It’s unlikely that competitors will be able to match that price, because they simply can’t make up any losses on content. Amazon has a key advantage there. But I do expect that future 7-inch tablets to be priced in the $250 to $300 price range, even if that means eliminating some features, like a front-facing video camera, for example. The pressure is on: small tablets going forward will need to have smaller price tags too, thanks to Amazon.

18 Responses to “Best aspect of Kindle Fire? 7-inch tablet price pressure”

  1. The reason Amazon can afford to sell it at $199 is obvious, they are using this device to expand the reach of their digital media ecosystem, and that’s where the real money is. Most of the tablet makers can’t make this claim, and it’s the real issue with Google’s approach. Samsung doesn’t have an app store, music store, book store, video store, etc, with which to monetize their tablets. They are effectively forking this revenue stream over to Google, in return for what? I don’t know what kind of agreements these manufacturers make with Google, but it’s becoming increasingly apparent that the only way these guys will be able to compete with device makers like Amazon and Apple, is if they get a cut of the share from Google’s digital content sales. If they don’t the price pressure exerted from the device makers who *do* control this revenue stream, like Amazon and Apple, will force the sustainable average retail price of tablets into territory that is not profitable for other makers.

    The unfortunate flip-side of this coin is that this may cause other manufacturers to attempt to create their own platforms for digital content, or eschew Android completely for an in-house OS, and I don’t know that many of these attempts will be successful. It didn’t work for Palm/HP, and Blackberry’s chance at success is all but gone at this point too.

  2. Ruchit Garg

    iPad is for performance seeker and Fire is for value seeker. As you can imagine, there are more value seekers (especially in these times) Fires is going to sell like hot cakes…Best consumer device for the year i guess.

  3. joe patel

    9.7 inch is ok. But at 7 inch, magazines need to be heavily reworked to be viewable. That’s why the selection won’t be great. Nook is the most comparable with the kindle and it had been popular for whatever reason. So I don’t think that kindle will be a winner takes all if nook colour is lowering its price to undercut amazon. And don’t forget that a new generation of ipod touch is around the corner. It is even more portable than the fire. The only issue is that it doesn’t have the new car smell.

  4. Paul Callanan

    The Kindle Fire is great for Adult’s to give the Children, as it has no Camera, and can not be used to post sensitive or Bullying material on Facebook or other Social Network’s. It can also solve the problem of theft whilst your Child is on the way home from School, due to the price factor. And should encourage READING. Good one Amazon, thumbs up, from :-[ ]

  5. Kindle Fire is a much better option for Parent’s to give their Children, from two Security perspectives. Firstly no Camera means no nasty Photograph’s for Social Network’s, less Cyber bullying, and theft attempt’s as your Child return’s home from School. Figures will show a big uptake, for Kindle Fire.

  6. “There’s no mobile broadband connection, but the device does have a Wi-Fi radio.”

    What does this actually mean? Do you mean you can’t surf the internet? Sorry if it seems like a dumb question. Bill

  7. What will the Amazon tablet be like in 5 years? Will it always be at the low end similar to low end computers? What will happen as the method of interaction advances, or as media viewing methods and distribution evolves. IMO, the Amazon product is OK for now, but it does feel like there was no thought toward the future. It seems like a bandaid solution to a changing market and Amazon feeling threatened.

    If the rumors of WebOS being purchased by Amazon are true, and it happens, then maybe there’s a different story being withheld. Will the purchase of WebOS have an impact on Android? Is a great shakeout occuring similar to the late 80’s. Being popular now is not necessarily telling of being popular 10 years from now.

    Anyway, the price does seem attractive and if it doesn’t work it was only a few hundred dollars.

  8. fernando dos santos

    Both Amazon and Apple are showing the way for other tablet makers: To the cloud. That’s what these devices are intended to reach for and tap in to for their content, even content that is user created. The iPad was initially derided for not have a USB port or SD/XD/MD what-have-you reader or cameras or HDMI or floppy drives. But for what are they needed? They are nice additions, but ad heft and engineering to accomplish. Some additions are nice, such as the camera(s), but anything beyond that can be handled through wi-fi.

    These early tablet makers were chasing blog spammers that complain about no Flash, no HDMI, no terminals, no sale. But in the end those flamers did not turn out to support the devices that included most of the features tablet makers put on that were supposedly missing. So now we got tablets going on sale for half the list price or even less. Meanwhile the true consumers of these devices will continue to buy iPads and surely will buy Kindle Fires. And the flamers will continue to throw fire and hate through the blogs and the fool-hardly will chase them for money which they will not part with.

    • Awesome response. Its true in every market. Its great to see Amazon take th initiative and bring and guts to build an ecosystem to support there products. I think this is exactly why the Kindle has been so popular and survived so long in a market it was never ment to compete in. I think the Kindle Fire will pack a bang for the buck and my be a product that can find its place i the consumer market for tablets.

    • I think Amazon is going to sell a lot of Fires, but it doesn’t mean that there isn’t room for improvement. I think that there will be glaring weaknesses in the Fire once you take it out of home because it’s wifi only and doesn’t have enough capacity to store a lot of content. Apple sells ipads with both 3G and higher storage capacity, so that individuals can choose the model that works for their needs. The future Fire model probably needs either more capacity options or an SD card slot because for people who want to watch video out of home, which I think will be a lot of people, you just can’t do a lot with 8GB capacity.

      Just as an aside, I met a lady on the bus who had purchased an ipad, but said she was going to return it because it doesn’t do flash. Her favorite sites run flash and this essentially made the ipad worthless for her. Apple is going to continue to sell millions of ipads, but it doesn’t mean that there isn’t room for improvement or room for other devices.

  9. Kevin – lets have some fun here. What is your guestimate regarding the new Samsung 7.7? Regardless of whether it gets to the US, people are talking about a price tag that can get to 800$. What do you think? :)