Amazon’s $50 Fire Tablet will Shake Up the Tablet Market

On Sept 17th, 2015, Amazon released three new tablets I believe could serve as a catalyst to help jump start the market in terms of units shipped. At the upper end is a 10” tablet that will sell for $230 with 16GB of storage and an 8” model with 8GB of storage. Both models have a Micro SD slot and, for about $17, you can upgrade to 32GB. For $24.99, you can have 64GB of storage. Note the prices. Amazon is being very aggressive and these should be big sellers over the holidays. However, the tablet they launched for $50 is the most interesting. This is called the Fire 7” edition. It has 8GB of storage and also includes a SD card slot for additional storage. At this price, Amazon has to be selling this at cost, but they clearly believe it can be strategic to them for a couple of reasons.

First, the 7″ Fire is pretty much a portable multimedia player. One of its key reasons to exist is for videos, movies, and other streaming content. If a person has Amazon Prime, they have access to thousands of movies and TV shows as well as music. In essence, this tablet is a front end to Amazon’s broad range of content. It will also be a great portal into Amazon’s shopping services. One can use it to buy anything Amazon sells using a highly mobile and secure device. The second reason it is strategic is it helps Amazon extend their brand into homes and families in a broader way. At $50, it’s almost a no-brainer to get one of these for each kid in a family. Or for that matter, have one in each room. Since I test tablets, I already have a tablet in every room of my house and it is very handy to be able to pick one up at any time and use it for a specific purpose.

One important thing to note about the Fire 7 is that this is a quality device. Today, most tablets in the $65-$99 range are of poor quality. In fact, the ones I have purchased in Asia when traveling have all died since they were not durable or even all that functional. But a quality tablet at $50 in the US and other markets where Amazon sells products is an eye catcher and I think they know there will be a lot of interest in them. One unique marketing move by Amazon is to offer a “buy 5 tablets get one free” promotion. They believe that, at $250 for 6 tablets, a lot of people will buy them over the holidays as gifts for family members and even business colleagues.

It will be fascinating to see the acceptance of this product in the market but my gut tells me they will sell a boatload of them and it will be an important tool to help them grow Amazon Prime and related services.

While I like the new 8” model, the more interesting of the two pricier versions to me is the 10” tablet for $230. Amazon will be offering a optional keyboard case with it and, in a sense, this becomes Android’s answer to the 2-in-1 models Microsoft, PC vendors and Apple, with the new iPad Pro, are offering this fall. A few weeks back, I wrote here in Tech.pinions that I believe there is a market for an Android laptop. I reasoned that, for most people in the world, their introduction to personal computing has come through an Android Phone. It seems logical, as they become more computer literate, that many of them may want to graduate to a larger tablet or even a laptop. But the idea they would make the jump to a Windows PC as their first true PC is hard to imagine. Indeed, it makes more sense that these folks, who cut their teeth on Android, may want an Android-based large tablet or a laptop with a UI they already know and can use without much of a learning curve. Even if they will use it for productivity, they now have many of the same tools on Android that are on Windows, plus tons of Android apps that cover a broad range of user’s needs in a form factor that goes beyond their smartphone.

Together, I can see how these three models can drive a lot of sales of tablets for Amazon and, if the $50 model has strong demand, it could even drive the overall market for tablets up by as much as 10-15% from where it is today. It will be hard to tell how much they impact Amazon’s bottom line though since the low cost model is clearly a loss leader to drive more services and product purchases and tracking that is difficult. And I suspect the margins on the two other models are about 7% to 10% at best. However, at the strategic level, I see these tablets as big winners for Amazon and should help them have a pretty good holiday season.

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Tim Bajarin

Tim Bajarin is the President of Creative Strategies, Inc. He is recognized as one of the leading industry consultants, analysts and futurists covering the field of personal computers and consumer technology. Mr. Bajarin has been with Creative Strategies since 1981 and has served as a consultant to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba and numerous others.

317 thoughts on “Amazon’s $50 Fire Tablet will Shake Up the Tablet Market”

    1. Possible but it will be an interesting test given its price point…Even with that they could sell millions of them as a loss leader to push other services. First of its kind and anxious to see of this works. If not then it is a race to the bottom,

    2. Like bikes are race-to-the-bottomed cars, and apartments race-to-the-bottomed houses ? Different use cases call for different tools ?

      I spent part of my holiday in an iWorld full of iDevices… frankly, no-one was doing anything they couldn’t have done just as well on much cheaper devices. Actually, they could have done more on Androids (have more of them to stop the kids fighting, have more storage to have a choice of TV/Movies, not have to carry external batteries…)

    1. That depends on whether it was designed to satisfy Jeff Bezos (like the Fire Phone) or whether it was designed to satisfy the market it’s targeting. I’m not sure how Amazon can produce a quality tablet to sell for $50 unless they take a loss on every one, but if it IS well made it should get a lot of attention and reach high volume.

          1. 1- who cares ?
            2- do the two have to be mutually exclusive ? I think it’ll sell, and I think Mr Bezos will be happy about that ?

    2. Mmmm how so ? The Fire phone was a full-price flagship with doubtful “innovative” features, this is a barebones cut-price tablet.
      What similarities do you see ?

        1. You already see failure in a just-launched refresh of a semi-successful line based an a totally different concept than the failure ? My, you ARE good.

  1. This is a great product for the home automation market! Since most HA systems have a web-browser user interface option, it is now very cost effective to mount a nice color tablet to the wall of multiple rooms and have a relatively large, easy-to-use control pad. Bye bye overpriced, proprietary solutions from the legacy HA vendors with their closed reseller-based “truck roll” programming fees.

  2. FYI – The entry-level tablet is actually $65 ad-free or $50 if you allow Amazon to serve ads as the screen saver. (At least they ask which you prefer)

  3. Amazon has been in the tablet game for quite a while now. In fact, it’s been in it since 2011, which is remarkable when you consider that the iPad was released only in 2010.

    Given it’s history, I think any discussion should begin with an assessment of Amazon’s previous success/failures. This is very difficult since Amazon does not release any unit sales, revenue or profit figures. I would be very interested if you could share any research regarding how well Amazon’s Fire tablets have sold, and how they have contributed to purchases on Amazon’s store.

    The only source that I know of which has been consistently following Amazon’s tablets since their introduction, is Chitika (an online advertising network). Although they only measure web traffic, they show that Amazon tablets are far ahead of Google, but that they lag behind Samsung.

    https://chitika.com/insights/2015/q1-tablet-update

    If we assume Chitika’s data to be a good indicator of the impact of Amazon’s tablets, it seems reasonable to conclude that it will continue to be strong relative to other Android tablets (shake up may be too strong of a word), but will make little impact on the tablet market in the US as a whole (which is dominated by iPad). Amazon’s strategy appears to be the same as with the first Fire tablets, and I’m not sure that it will have a substantially different effect.

  4. OK. So I just decided to search the web and do a bit of research.

    Looks like Fire tablets are having a really rough time. A drop of 69.9% YoY (IDC) is kind of traumatic. If this is true, then the new price of $50 looks less like a carefully though out and rational strategy, and more like a desperate last gasp for air or a fire sale. Of course, fire sales can work

    http://uk.businessinsider.com/tablet-sales-and-market-share-kindle-struggling-2015-2

    Of course, this isn’t to say that fire sales don’t work. Going back to August 2011, HP pulled the plug on WebOS and so they dropped the price from $399 to $99.99 to clear out inventory. This reportedly got them to 17% of US market share in November. As I recall, this wildly successful fire sale was the first time that Android tablets had ever earned any significant market share against the iPad, and was the inspiration for cheap tablets like the original Amazon Fire and the Google Nexus 7.

    http://www.phonearena.com/news/HP-TouchPad-reduced-to-as-low-as-99.99-starting-tomorrow_id21378

    http://www.phonearena.com/news/HP-TouchPad-fire-sale-to-resume-December-11th_id24472

    So my take;

    1.
    This is probably not a carefully thought out strategy.

    2.
    Unit sales might be quite good.

    3.
    The question is what next? Amazon could not build upon the early success of the original Fire, leading to the 69% drop as reported by IDC. What will be different this time?

    1. I read somewhere (sorry, my google-fu is failing me) that Amazon is seeing significantly more sales (*) from Fire- (and Premium-) equipped customers. One might think of the $50 Fire as Amazon’s catalog. And it costs them nothing (the $50 must just about covers costs) and creates lock-in (a bit, you can still use our Amazon-bought apps regular-Android devices, if you sideload Amazon’s AppStore)

      I think device sales are only a small part of the story.

      (*) of both physical goods and apps/media.

      1. The question is what is the direction of the causation? Fire purchase leads to more Amazon stuff purchases or big time Amazon purchasers are the ones who get the tablet. Looks to me like it’s the latter which is probably not what Amazon was hoping for.

          1. Yes, I’m sure. But what do Amazon’s actions tell us? If the Amazon Fire worked so well to generate revenue they would otherwise not have, then it stands to reason that they would have been much more aggressive with pricing, and worked harder to gain market share.

            The fact that they did not do so, that they dabbled in the high end with the Fire phone, suggests to me that their data indicated that selling hardware at a loss wasn’t such a good idea at all, or that the results were inconclusive.

            Of course when sales fall 69.9%, it’s no longer the time to carefully ponder over inconclusive data. That’s what I think is happening right now.

          2. I’m really not sure how the whole thing works.

            Why do they even want to be in that specific market ?
            Why bother with a fork and an appstore but not push them to other OEMs ? (I’m guessing the PlayStore is preferred, and Google aren’t picky about letting anyone load that up ?). Why isn’t Amazon competing with CyanogenOS ?
            Are they going to ODM a Fire phone ? Everyone and their dog is rebranding Chinese handsets.
            Why be price-aggressive at 7″ but not at 8″ nor 10″ ? Nor 12+” for that matter, the bigger the better for sedentary TV replacement ?
            Are they seeing a significant content/ads long tail ? at those prices/margins, even $10/yr/device is significant.

            Are they seeding the market for Alexa ?
            Are they actually happy with whatever margin they make on the things (over their shelf life, I’m sure it is rather back-loaded)

      1. Thanks.

        Although there is a causation issue as the author himself notes (do Kindle owners become heavy users, or do heavy users become Kindle owners), the correlation exists.

        This correlation makes the 69.9% YoY decline in Amazon Fire sales an even more serious concern for Amazon.

        Initially, when Amazon introduced the Kindle Fire for $199, I had expected them to skip sexy hardware and to continue to sell at rock bottom prices. However, that has not been the case. They added higher-end models to their lineup and did not reduce prices to match the influx of really cheap Chinese devices. I wondered whether they we really making up for the low cost hardware through sales on Amazon.com. Maybe they were abandoning the rock bottom strategy because in practice, it didn’t made sense. Maybe they thought that they needed products that were good enough to sell without being subsidised. Although not directly related, the Fire Phone is an example of Amazon trying high-end hardware and failing dismally.

        The trend seems to be that they initially tried a subsidised rock-bottom pricing model, they then decided that they wanted the hardware to be profitable on it’s own (which meant going up-market to premium devices), and then after the disastrous Fire Phone and the possible 69.9% drop in Fire tablet sales, realised their mistake and decided to go back to rock-bottom pricing. If so, it would suggest a haphazard approach to hardware, fluctuating between a desire to sell high-end items and the reality that Amazon is a discount brand.

        1. I’m wondering if they
          – tried to increase margin… and won’t do it again. Their tablet share crash coincides with the ignominious Fire phone, I’m assuming both products had the same managers.
          – manage margins over the product’s lifecycle: don’t lower prices as component costs diminish and costs are amortized, so one year on you still have the good press you generated at launch, but generate a lot more margin on the product.
          We’ll see what they do this time around.

        2. “it would suggest a haphazard approach to hardware, fluctuating between a desire to sell high-end items and the reality that Amazon is a discount brand.”

          Here’s an alternative MO for Amazon. Perhaps they’re focused on store loyalty and they see that, just like Prime, the Fire could be an incredibly strong buying ‘club’ cohort.

          “I own an inexpensive Amazon Fire Table. Thank you Jeff. I owe you. You are incredibly generously. You sold me this tablet so cheaply; you must have sold it at a loss. I heart your stuff and will buy more to make it up to you. All hail Jeff!”

          (Please allow for some poetic license.) : )

        3. The problem with rock bottom pricing for the tablet in the hopes of making up through merchandise sales is that the low price will attract the “frugal” customer, the one who sees a very cheap tablet computer and has no intention of purchasing a lot of Amazon merchandise.

          Amazon might counter this by making the tablet less a general computing device and more a specialized purchasing device but people seem to react negatively to that either because a shameless ploy to sell “stuff” rubs them the wrong way or they don’t want to carry a second device just to buy stuff.

    2. HP’s “wildly successful fire sale was the first time that Android tablets had ever earned any significant market share against the iPad…”

      How can that be? The HPs did not use Android. WebOS was based on PalmOS

  5. I think the $100 kid’s version is very relevant too. Not so much for the ruggedness and warranty (it has those, too), but for the curated app store, content store, and browser.
    Most parents are freaking out over internet dangers for their kids (which is hugely mis-leaded, dangers are overwhelmingly in the real world, and from non-strangers… but that’s not the issue here). That solves this, probably ? And, for having tried to set up something similar 2 years ago… it saves a huge amount of work, hopefully for a better end result.

    1. I agree. I suggest, in fact, that Amazon should sell a device that can’t buy or download stuff from Amazon.com, but can only consume the digital content that the parents have already purchased on another device. That way, you can ensure that the kids will not buy stuff online with your credit card, even if they manage to discover the password that you are using.

      1. I suspect that would be a very small market. It’s essentially the same hardware as a full-fledge tablet but with gimped software.

        Actually, all that’s needed is a setting that parents can configure and voila! there’s your narrowly focused media purchasing and viewing device.

        1. It’s a bit more complicated than that, even Google is struggling with their YouTube for kids. You need to monitor apps, media, the web… Amazon say they have actual human curators (if they were doing music playlists, everyone would be talking about that, because music is soooo much more important ^^), and they’re being perma-audited by some specialized 3rd-party.
          Not sure what they’re doing about chats.

          That’s only the negative side of the equation though. On the much more important positive side, what matters is having good content, and training the kids and their parents. Not sure how they stand on that.

  6. At least one major e-tailer in France has had pretty much the same deal for about a year (http://www.lesnumeriques.com/tablette-tactile/haier-cdiscount-cdisplay-p21547/test.html , sorry, that article didn’t get translated on their UK site), with the same setup: passable tablet, cheaper version with adds.
    Of course Cdiscount is not Amazon. it’s Casino though, a big French retail group, and France’s #1 e-tailer. They’re not wwide (apparently they’re expanding though), and don’t sell content (they do have a few shopping-related apps, but no app/media store).

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