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Watch out tablet-makers, Amazon’s new Kindle Fire tablets are hot!

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Did you hear a sound at approximately 1 p.m. PT on Thursday afternoon? That loud boom was Amazon’s(s amzn) Jeff Bezos taking shots at both Apple and Google as he introduced a new line of Kindle Fire tablets with improved hardware and services. And just to make matters worse, Bezos outed an improved e-ink Kindle reader while also cutting the price on both the old entry-level Kindle reader and Kindle Fire. The battle for consumer attention just got turned up a notch.

What did Amazon announce?

First a quick recap on the slew of new and updated devices:

  • The entry-level Kindle drops in price from $79 to $69 and gains improved fonts and 15 percent faster page turns.
  • A new Kindle Paperwhite reader will cost $119 with Wi-Fi or $179 with 3G and boasts improved contrast and 62 percent more pixels. The touchscreen is capacitive and has a patented LED lighting system for reading in the dark. I’ve already pre-ordered one to replace my Kindle Touch.
  • Last year’s Kindle Fire tablet gets a minor refresh and a $40 price drop: For $159, the 7-inch tablet with 1024 x 600 display  and 8 GB of storage has a 40 percent faster processor, twice as much RAM, and longer battery life than the original model.
  • A new 7-inch Kindle Fire HD costing $199 gets a 1280 x 800 high-definition screen, 16 GB of storage, 11-hour battery life and 1.2 GHz dual-core processor.
  • A pair of 8.9-inch Kindle Fire HD models are available. First, the $299 edition brings the screen resolution to an eye-popping 1920 x 1200 display, 16 GB of storage and uses a faster 1.5 GHz dual-core chip. Another $200 investment gets the same model but brings the total storage to 32 GB and includes a radio for AT&T’s(s t) 4G LTE network along with a corresponding $49.99 yearly LTE service. While this plan sounds good and cheap, you only get 250 MB of monthly LTE data, which will go quick. And AT&T currently has 60 LTE markets as compared to Verizon’s(s vz)(s vod) more than 300.

All of the new Kindle Fire HD models support dual-band Wi-Fi (2.4 and 5 GHz) as well as MIMO radio technology, so if your home wireless router uses MIMO to boost the signal throughput, these tablets can offer faster wireless performance over the current iPad and Nexus 7, for example.

On the software side, Amazon has improved its Kindle Fire operating system, which is still built upon Google Android(s goog); although Android is hidden by Amazon’s custom user interface. Whispersync applies not only to books, but also movies and games, so Amazon will keep track of where you leave off on content or in a game. Immersive reading is a new feature as well. Since Amazon owns Audible, it pairs the audiobook service with ebook content: You can have your book read to you while you read it on the screen. Amazon’s X-Ray technology now expands from books to both movies and textbooks, showing a glossary of information on command.

How does this affect the tablet market?

Amazon’s play is interesting because it’s been a technology and service company for much of its early history. Only recently has it gotten into the hardware game; first with the Kindle and, more recently, with the Kindle Fire tablets. Contrast that with Apple(s aapl), which was a hardware and software company early on and later got into services. Both companies are going after the same audience, but from opposite starting points. But both also have a good strategy as consumers aren’t just buying devices or gadgets; they’re now investing in platforms. Amazon and Apple each have excellent platforms for various forms of digital content and entertainment. That leaves some of the Android tablet makers in a tight squeeze, not only from Amazon and Apple, but from Google itself, which has recently built up the Google Play store.

Kindle Fire HD with X-RayAmazon and Apple share another key, but related, difference that will affect the tablet market: pricing. Apple takes the premium price approach and reaps healthy margins from the iPad. In contrast, Amazon undercuts competing products by selling them at or below cost and then making up profits on content sales. Jeff Bezos noted this Thursday when talking about the unexpectedly low prices for the new tablets, saying Amazon doesn’t want to make money when customers buy its devices, but as customers use its devices. That leaves other tablet makers between a rock and a hard place: They don’t have the content to justify Apple-like prices on their tablets, nor do they have the content to sell hardware at a loss and then make up profits later.

As a result, all of the Android tablet makers will feel pressure going forward. And perhaps only Google itself may be the third wheel of success in this market. Like Amazon, it has content: videos, books, music, movies and, of course, apps. So it can afford to sell hardware at a low- or no-profit margin and make some back on content sales as well as information gathered for targeted advertising. And like Apple, Google controls its platform to some degree thanks to the Google apps for Android, hardware partners for Nexus devices, and ownership of Motorola.

Regardless of how consumers vote with their dollars, Amazon made big splash in the “Tablet Sea” with its new products. They appear much improved over the prior generation, have compelling price points, and offer a supportive ecosystem of digital media. That may not bode well for Microsoft, which is very late to this game. Yes, the Surface tablet looks nice, but unless Microsoft takes an approach similar to its Xbox 360 hardware and relies upon software sales to bring profit, I can’t see how Microsoft(s msft) competes on the consumer side. Enterprises may still want Windows, but plenty have already shown they’re content with an iPad or other tablet.

15 Responses to “Watch out tablet-makers, Amazon’s new Kindle Fire tablets are hot!”

  1. John Maliga

    This article is about a press release for new products that have not been tested by reviewers or users. Amazon keeps a narrow focus, and has neutered Android in order to control the interface, which is still focused on media (books, magazines, videos, etc.). Unlike Apple, Amazon (and like most other hardware vendors) proliferates models, hoping that you’ll ignore the larger picture and focus on minor distinctions among their products, and on the price point. They’re most likely not competing for the same customers, except for a small overlap. You can speculate all that you like, but comparing Apple and Amazon is apples and oranges. Apple creates a very few, clearly-defined models, often at lower price-point than their competitors (features vs. hardware vs. user experience) with a well-established infrastructure. Amazon is the only competitor with a competitive infrastructure, and their UI and hardware is yet to be proven.

  2. Re: Microsoft … haven’t they kind of already shot themselves in the foot with the Surface RT in that they are going to ship it with Office pre-installed? The price point is supposed to be “competitive” with other 7″ tablets too, so … $200 seems to be as high as they could go. If it comes pre-installed with Microsoft’s biggest money maker and doesn’t even allow installation of other desktop class apps, I don’t see how they can possibly make any money there at all.

  3. “Unless Microsoft takes an approach similar to its Xbox 360 hardware and relies upon software sales to bring profit.”

    Kevin, does Microsoft have enough software (i.e. apps) to make that work for the Surface?

    • The verbage on the Amazon site would indicate the 3G would only allow download of books. Like the KindleTouch 3G, the free 3G roaming is neutered. They didn’t really make it very clear with the KT 3G. I had a KindleKboard 3G, which was excellent for minimal browsing w/o a touch screen.

      “Upgraded” to the Touch 3G thinking it would have the same feature (which frankly, I would’ve used couple times a yr if that; but found out I paid quite a bit more money only to allow Amazon the previlige of selling me books all over the planet. The same seems to have happened with the Paperwhite.

  4. I’ve already decided that I’m going to get a 7″ in all 4 ecosystems, N7, Kindle Fire HD, upcoming iPad Mini, inevitable Windows RT.

    Truthfully though, the 1 that excites me most is Windows RT. Simply because MS has already stated that Metro was designed as their “universal” scale-able UI going forward for 7″ & up. So it has the possibility of not just being a tablet but also docking to a monitor/KB/mouse for productivity & a TV for entertainment.

  5. I liked your last point about the Xbox 360. It’s almost as if Microsoft realized that OEMs were going to struggle to match price when amazon can make the device a loss leader. With their own device the Surface, Microsoft can be really aggressive on price and if any of there partners complaines they can just say look at the kindle fire and say that’s benchmark.

    Maybe wishful thinking, but anyway it’s gonna be an interesting end of year

  6. Brian Mulawka

    As someone who is outside the US, I hope this will drive other manufacturers to focus more on our market. Amazon aggressively ignores foreign markets, so instead of focusing all their resources on the increasingly crowded and low-priced US market my hope is someone will see there are consumers outside the US worth selling to.

    • The only reason Amazon ignores foreign markets is because of the commercial complexities of delivering all that content in foreign markets. The US content producers have a mess of rules and limitations in place when it comes to foreign distribution. Whoever can convince the US content producers and copyright holders to GET WITH THE TIMES of a connected world and streamline/rationalize content distribution to foreign markets, will win worldwide. If anyone can do this, Amazon can.

  7. What persuaded you most on the Paperwhite, Kevin? Was it the integrated light, higher resolution, improved fonts? I am debating whether to order one or get a cover with the light for my 4 month old Kindle Touch. I know you liked that very much but the integrated light seems a really nice feature. Thanks as always for your perspective.

  8. Travis Henning

    This is easily the biggest moment in the tablet space since the introduction of the iPad (and that may be an understatement). It is truly a game changer and looks to be a hard hit to the Android tablet manufacturers (and indirectly Google). Without an ecosystem you cannot compete in this space. I have not bought a tablet yet because 1. I’m invested in the Apple echo system and wanted a 7″ tablet and 2. none of the Android tablets was a must have. But I am seriously considering the Kindle HD. As a parent, the Kindle FreeTime feature is pretty cool. And as a Prime subscriber, the pull is that much greater.

    It’ll be interesting to see how the Microsoft play works out over the next several months. I can see them duking it out with the iPad in the corporate space, but I see a boat load of consumers choosing the Fire HD over the iPad unless the rumored mini is truly magical.