Amazon’s Kindle Fire Raises The Table Stakes For Tablets

As expected, Jeff Bezos announced new Kindle products yesterday in Santa Monica — and what an interesting range of products these turned out to be! While the updated Kindle eReaders offer better performance and a lower price point for those dedicated eBook lovers, it’s the Fire range that really impressed.

In place of the low-powered, fairly low-spec, North America-only original device, there are now three to four devices — running the gamut from version 2 of the original all the way up to the 4G-enabled 8.9-inch Kindle HD with its own data plan. The pricing of the devices is even more intriguing — at $159 for the lower-end 7-inch tablet, $199 for the 7-inch HD tablet, and $299 for the 8.9-inch HD tablet (Wi-Fi only), these represent a new challenge to other manufacturers’ Android devices and Microsoft’s upcoming Windows 8 tablets. Additionally, European markets (the UK, Germany France, Spain, Italy) will get to see the 7-inch Fire devices (both version 2 of the original and the HD device) at more or less the same time as the US – no sign of the larger device, but that’s probably reserved for the US market while supply ramps up.

What does this mean?

  • Android tablets (aside from the Nexus) are dead in the water. With Google and Amazon both squeezing the price of Android tablets, its difficult to see how Samsung, HTC, etc. can compete in this space, especially given that they don’t have Amazon’s and Google’s alternate revenue streams to supplement loss-leader hardware. The Verge published a very good article on this prior to Amazon’s announcement.
  • Microsoft finds itself at a crossroads. Microsoft now has two options for the Windows 8 RT tablets:
  1. Stick to its “The Kindle Fire and the iPad are just for content consumption; Windows RT tablets will be for so much more” message that has been its mantra for several years and try to price high — a strategy that’s almost certainly doomed to failure if it relies on retail and mainstream consumers to understand the difference.
  2. Price the Microsoft Surface (RT version) competitively to hit Google and Amazon head on and undercut Apple. The downside here is that it means alienating those already-alienated Android OEMs as well (on the ARM platform at least). Also, Microsoft has very little content or advertising revenue to make its money back on hardware subsidies. So as previously mentioned, the $199 Microsoft Surface RT seems unlikely.
  • Apple needs to adjust its medium-term strategy. The iPad, iPhone 5, and (probable) iPad Mini will naturally continue Apple’s policy of premium pricing: Why would it slash margins when the competition hasn’t really made an impact? But it’s more important for Apple now to look at what price its tablets will be in 12 to 18 months’ time — a time frame that allows for Amazon Fire, Google Nexus, and even Microsoft tablets to establish a decent market share and application ecosystem. In a market of similarly designed — lawsuits allowing! — well-built devices with active developer support, Apple will need to adjust its pricing accordingly; consumer ties to the iTunes ecosystem can only be stretched so far.
  • For consumers, it’s win/win (after six months of pain). The upshot of all of this for consumers is that there will be much more choice in the tablet space, more competitive pricing, and a wide variety of capabilities and ecosystems to choose from. This won’t happen overnight, though. To get to this tablet heaven, we’ll need to go through a glut of dismal Android tablets dumped on the market by those OEMs boxed in by Google/Amazon; Windows RT tablets arriving with their confusing “It’s a proper PC, but not really a proper PC” messaging; and endless discussions about poor battery life, built-in obsolescence, and app stores.

What’s next? Apple’s iPad Mini announcement will mix things up again in the next month, and we’re still waiting on pricing details for Windows tablets.

So, When Do The Tablet Wars Start?

The iPad is a true phenomenon, selling around 70 million units since launch and projected (by Gartner) to reach up to 169 million units per year by 2016. It has demonstrated the consumer (and, potentially, business) desire for a simpler device that delivers a fantastic media “consumption” experience in conjunction with simple yet compelling apps.

Android tablets and Windows 7-based tablets have also been around for some time, so you’d have thought that the tablet “war” would have started already. Not so much. There have been a couple of false starts: the Samsung Galaxy Tab, BlackBerry PlayBook, and HP TouchPad — the latter two briefly even outselling the iPad in certain segments/markets, but only after “fire sale” discounting — have all been heralded as serious challengers but have failed to make an impact. These were certainly no more than “skirmishes” rather than an all-out war.

The Amazon Fire made some inroads in Q4 2011, extending the firm’s e-reader device line, but this seemed to wither on the vine in Q1 2012. New devices like the Asus Transformer and second-generation Samsung Galaxy tablets seem to be better received, and Google’s own tablet may arrive soon. These will, doubtless, cement Android’s position (based on cumulative sales) as a significant second-place player. But the tablet war won’t really heat up until Microsoft hits the market with both Windows 8 RT and Windows 8 tablet devices.

Microsoft needs Windows 8 and Windows 8 RT to work straight out of the gate.

Windows RT on ARM architectures will provide a proper Metro-driven, Windows-like tablet — one better than those cobbled together with Windows 7 to try and keep business clients from buying iPads — and at a price point (hopefully) comparable with other tablet offerings. Meanwhile, if you need real Windows on a tablet with proper backward compatibility, Windows 8 tablets with x86 architectures should arrive at around the same time. Pricing on the latter is likely to start high and then trickle down as component prices drop; it’s also where we’ll see interesting “hybrid” devices like laptops with touch screens and tablets with slideout keyboards.

It’s a bold move and, arguably, one that Microsoft should have made last year; Windows RT will introduce a lower-cost iPad competitor with a good user interface (UI) and some legacy compatibility (for Office docs), but it may end up as just another Zune HD — superior to the iPod in terms of hardware and UI but gaining zero traction in the market. Similarly, Windows 8 tablets could be far too expensive; if they cost more than a decent laptop and iPad combined, it’s hard to envisage rational IT managers or brand-conscious consumers opting for the untried tablet.

Perhaps this is why forecasts from the likes of Gartner and DisplaySearch see iOS as the leading tablet platform all the way out to at least 2017, with Android only gaining ground slowly and Microsoft performing poorly (according to Gartner) or atrociously (according to DisplaySearch).

It’s too early to call a winner in the long term.

The truth is that with no international market for the Kindle Fire yet, only rumors of the Google tablet, and no pricing on details for either flavor of Windows 8 tablet, it’s too early to announce the winner of this war. Apple heads into the conflict with tremendous momentum and economies of scale, but the same could have been said of Sony, Kodak, or Atari in the past. The key questions will be:

  • Who will deliver a tablet that supports those neglected usage scenarios (transactions, work stuff, communications)?
  • What will be the difference in price points between Windows RT devices and entry-point x86 Windows 8 tablets? Will all Windows 8 tablets be “transformer” or hybrid models that have slideout keyboards . . . or will there be a mainstream, pure tablet offering based on x86 architecture?
  • How long will there be manufacturers with feet in both the Windows and Android camps? Will we see this breaking down, as per today’s “PC manufacturers” and “smartphone manufacturers”, with just a few firms (Samsung, Apple, Sony) being global players in both?
  • Who is going to explain to the poor consumer standing in a PC retailer the difference between and unique benefits of: 1) a traditional notebook running Windows 8; 2) an Ultrabook with a touch screen running Windows 8; 3) a tablet running Windows 8; 4) a tablet running Windows 8 RT . . . even before we factor in Apple devices, Android tablets, hybrid Android devices, and Chrome OS laptops!

April 27: The New Amazon Kindles Hit Europe, But Without The Fire

As of yesterday morning, Amazon is accepting pre-orders for the Kindle Touch (Wi-Fi or 3G) in the major European markets (the UK, France, Germany, Spain, and Italy) for around the same price as the Kindle Keyboard used to sell for — although it will cost more than the later, non-keyboard non-touch device Kindle (naming conventions are not, apparently, Amazon’s strong point!).

The ‘new’ devices have been available in the US since mid-November 2011, so they’re heading to Europe some 6 months later; this is good for most markets except the UK, where the Kindle Keyboard launched at much the same time as in the US.

The Touch has slightly more memory than some of the older devices, is smaller than the Kindle Keyboard, and — of course — has an infrared touchscreen. It’s a nice device with the same excellent screen and battery life, and it continues to be a proof point for single application devices that really excel. However, these devices are looking increasingly expensive when one can buy an (admittedly not great) 7-inch or 10-inch Android tablet for about the same price. And while device manufacturers like Sony and Kobo aren’t offering high-profile competitive devices in Europe to match the Barnes & Noble Nook in the US, they do offer perfectly competent — or even better, depending on how firmly you buy in to Amazon’s ecosystem — e-Ink readers at a variety of price points.

Perhaps the biggest question for tech-conscious consumers though is this: “Where’s the Kindle Fire?” This was announced at the same time as the Touch in the US and also started shipping there in mid-November. I think that Europeans will have to wait quite a bit longer for the Kindle Fire, and here’s why:

While the Fire is Amazon’s future, it does quite nicely with e-Ink devices. Here’s a question for you: Is Amazon more like Google or Apple? With regards to devices, Amazon’s business model is far more Google-like; while they both make devices (or support partner manufacturers), they are really interested in the content and your connection to it — either selling it to you (Amazon) or selling advertising around it (Google). In contrast, Apple has built a compelling ecosystem, including content offerings, but it is still really about selling you that next device. While Amazon makes money from Kindles (both the Touch and the Fire), the real margins are in what it sells you to put on it. If you use an iPad, Android tablet, or PC to download music, e-books, and video from Amazon, its margins from you are higher than for those people to whom it sold a device as well. Confused? Let me explain with a hypothetical example:

  1. John buys a Kindle Fire for $200 (Amazon margin: 20%) and buys $200 of content (Amazon margin: 35%). Total profit margin from John’s purchases: 27.5%.
  2. David uses his iPad and buys $200 of content from Amazon. Total profit margin from David’s purchase: 35%.

Amazon might have made more dollars in profit from John, but the content is infinitely resellable for no extra effort — devices aren’t.

So why is Amazon in the devices business at all? David’s example above gives a clear indication: he may buy e-books from Amazon now, but he’ll almost certainly buy his music, videos, and apps from iTunes. Amazon doesn’t want to be locked out further down the line, hence the Fire. Will Europe have to wait another 6 months for the Fire? Other than the iPad, there is no compelling device to take its place, so it probably will. But, tech-conscious consumers may choose to hold off on buying a Kindle Touch and wait for the Fire, luckily for Amazon its more mainstream consumers that buy e-ink Kindles.

The supporting infrastructure isn’t in place. I’ve touched on this before; the Kindle Fire draws on Amazon’s back-end cloud infrastructure (as does the new Touch) for storage and web browsing support (Amazon Silk). Rolling this out internationally means a significant investment in data centers and legal clearances. This is easier with the Touch, as you are only looking at e-books — most of which Amazon sold you in the first place. The data centers will come, given Amazon’s cloud investments for its business-to-business offerings, but it will take time. One obvious alternative would be to launch the Fire without these cloud facilities — but this lessens both the utility of the device (limiting storage) and how tied in customers are to Amazon.

We’re still waiting for the Android tablet market to shake out. The Kindle Fire is already one of the best-selling Android tablets, but this market still lacks focus (and decent margins). Court cases, form-factor debates, and telcos (particularly in Europe) that are still smarting from the last subsidy disaster (mainly the Samsung Galaxy 10) mean that Amazon can afford to take its time and get its device (and ecosystem) right. Additionally, Windows tablets (on x86 or ARM) are still at least 6 to 9 months away and will be much more expensive than Amazon’s current or proposed devices.

My best guess is that the UK may see the Kindle Fire in late Q2 or early Q3, as Amazon has traditionally used the UK as a European launch pad; Germany and France may follow by year-end. Because of the data center restrictions, it’s possible that other, smaller markets may never get the device in its present form.