[A note: Thanks to all of you who have come by to read this. I hope you find it interesting at least. PLEASE leave your comments and rating (at bottom). Thanks again! – jmmx]
Amazon’s new Kindle Fire was announced the other day, and it has set off quite a debate on how it will affect the tablet market place.
Here I present my analysis of Amazon’s strategy.
A real Game Changer is a feature that changes your way of doing things so profoundly,
that you are incapable of going back to how you did them before. [jmmx]
Reaction to iCloud:
What is happening here is a real reaction to Apple’s release of iCloud.
[Note: I am not interested in the chicken/egg discussion of who came first, who thought of cloud storage first, etc. It is all irrelevant. The point is that iCloud is out (well very soon as of today) and we knew it was coming for a while.]
The real point is Apple’s motivation for doing iCloud. In my opinion there are two:
- Aesthetically it is a great simplification for the users
- It goes further to locking customers into the Apple system (as one writer put it “with velvet handcuffs.”)
It looks to me that they have a strong product here and are showing VERY smart management! They are taking not a page but a whole chapter from Apple’s playbook (no pun intended) on how to build for the future.
They realize that now is the time (with iCloud almost out) where the customers of the future will be divided. Once you have all invested in one system, it will be much harder to quit.
Right now, iTunes itself goes with you everywhere, whatever songs you want to put in will go in, and the software runs on Mac OS, iOS, WindX (windows v X). You can even pipe to Android or others if you wish.
When all is in the cloud however, you will still be able to do move all your songs if you want to, but it will be a chore. All of a sudden you will need to take hundreds of songs collected over the years that have never really been permanently downloaded, and download them onto a real computer because you have too much for a mobile device. Like I said – a real chore!
THAT is locked in pretty hard!
There’s gold in them thar hills!
That’s right, there’s gold, and if you don’t stake your claim PDQ you are out. Period! The gold is customers, and any company that wants to play big in the online sales business had better stake out a claim or forever be a has-been. Amazon realizes this and they are in the game to win.
[Note: this is NOT a strict zero sum game, as so many simplistic thinkers like to believe. True, there are a finite number of customers in the world, but the number is large with enough for many players. To Amazon and Apple, “win” means being successful as a big player. I don’t think either cares about monopoly status.]
Fire sale costs Amazon
I really do not think they will get the Fire to be profitable for many years. The estimate is that they lose $50 per device in manufacturing costs.
I firmly believe they will never make all this investment back. That $50 does not include any other costs, software/hardware development, infrastructure, management, ongoing management….
I think Amazon Prime is already a loss leader item. (certainly not a big profit center by itself.) For just $79 per year, if gives members free second day shipping on all orders. When you add unlimited streaming video, no way they make any money on it.
It is also unlikely they will make any significant money selling apps. Android users are notorious for not buying paid apps. They are happy to have their apps be ad supported (which, BTW, keeps Google very happy!)
So why do they do it?
So, Amazon looks at iCloud and knows: if you miss this train then you are left at the station. It is now or never. So they are willing to invest heavily in customer acquisition. They are willing to take on a short term loss in order to be able to be in the big league game from now on. They understand that now is the only time, the last chance to get customers into their system, and they are aiming to do so.
They are NOT competing against the iPad.
And they are going about it very smartly. They are competing against Apple precisely by NOT competing against the iPad. That’s right, they are not competing against the iPad.
The Fire is completely set as a non-competitive tablet. It is smaller, which some will say is not really suitable for for browsing, and a lot of other apps. (The screen real estate is about 1/2 that of the iPad, although all is available for 16:9 movies, unlike the iPad. It seems to have a very good screen as well.) It lacks a camera. It lacks cell connectivity. It has very limited on board storage. It appears that it does not even have access to all Android apps – only those in Amazon’s own App Store. And so, the iPad remains the gold standard of what a tablet computer should be.
The Fire does, however, have an attractive overall package at a very attractive price. It is actively going after two demographics: those who do not like Apple, and those who cannot, or choose not, to sink $500 – $900 into a tablet. For these people, (assuming that it really does play well and their are no significant OS issues) it should provide a very positive experience.
Sure there will be some overlap in customers between the two, but for now at least, there still is no head to head competition here. Amazon is very, very smart. They understand that the best way to enter the market in a big way is to expand the market, not fight over customers. They understand that the key to their success is to get as many people signed into their system as soon as possible, Then, when they do move up to a full sized tablet and a price that is profitable, they will have an established support system – and an established customer base!
— Let me know what you think! —