fire – Tech.pinions

How Amazon’s Silk Will Treat Your Privacy

Debates in tech land all too often degenerate quickly into name-calling cat fights among partisans. So it’s rare, and gratifying to see two sides naturally skeptical of each other engage in a dialogue that actually enlightens rather than inflames.

The Electronic Frontier Foundation, reflecting the views of many privacy advocates, raised concerns about the amount of personal information Amazon.com might capture from users of the Silk browser in the new Kindle Fire. Amazon has responded in detail and the analysis of the response by EFF not only goes a long way toward allaying those fears but serves as a model of how this sort of dialog should work.

Silk bothered privacy (and security) advocates because everything entered into the browser in its default mode passes through Amazon’s servers, allowing Amazon to capture vast amounts of personal information. This is done to let most of the heavy lifting of rendering web pages be done on Amazon’s servers, allowing a much faster browsing experience.

In its response to EFF, Amazon made several key points:

A setting on the first page of Silk preferences will let users bypass Amazon;s servers, trading privacy for performance.
All encrypted sessions (anything with an HTTPS address) will link Silk directly to the remote server, bypassing Amazon. This means that Amazon will not see usernames, passwords, and other sensitive information from secure sessions.
The amount of user information logged will be limited and logs will be retained for only 30 days. Amazon told EFF that there is no way to associate logged information with a specific Amazon account.

EFF still has some concerns about the amount of data Amazon can collect and the danger that aggregated data might still be linked to specific individuals. But, EFF said in its conclusion, “We are generally satisfied with the privacy design of Silk, and happy that the end user has control over whether to use cloud acceleration. But this new technology highlights the need for better online privacy protections. As companies continue to innovate in ways that make novel uses of–and expose much more personal data to–the internet cloud, it’s critical that the legal protections for that data keep up with changes technology.”

Amazon could have saved itself a bit of trouble by releasing this information earlier, but since Fire won’t ship until next month, no damage has been done. Kudos to both Amazon and EFF for bringing out this important clarification.

A $299 Amazon Kindle Fire- What It Could Be

Last week the industry was engrossed in the Amazon Kindle Fire launch. There was lots of excitement, speculation and many questions on it. The $199 price point was one of the biggest points of excitement, particularly in that it was less than half the price of the Apple iPad 2. What could a $299 Fire look like? What features and use cases could it support over the $199 version?

Design Strategy

Every company needs a focused strategy, particularly in the risky tablet market, and Amazon surely has one. Amazon must balance inexpensive tablet “must haves” with ways to monetize their store. That’s why consumers can buy an inexpensive tablet and Amazon doesn’t need to make 40% gross margins. Their bet is that Fire consumers will buy their books, movies, TV shows, music, magazines, and maybe even durables. So everything needs to lead to an Amazon purchase or be a required element.

Operating System

Amazon will stick with Android 2.X as their base as it’s the only OS that Google has opened up. Google has yet to open up Honeycomb, even as Ice Cream Sandwich (ICS) is around the corner. If Google opens up ICS, they would want to move there for many reasons. First, they get access to larger screens, 10″ all the way to the TV. Secondly, they would need to ask less of the developers to modify their apps to work decent on a 10″ display.

Display

The display would most likely be a 10.1″, 1,280×800, IPS display. This is where the current cost break-point is right now. The other possibility is 1,024×600 display, given these are shipped en-masse on netbooks and mini-notebooks. Amazon could claim “HD” with both, but with x800 it would be “more HD accurate” given it could support real 1,280×720 (720P) movies. Also at x800 they can claim that the resolution is better than the iPad 2 at 1,024×768. That is, until the rumored iPad 3 comes out with Retina Display.

Web Sites versus Apps

One challenge Amazon will have with a 10.1” display and Android 2.X is the app’s appearance. It’s a stretch for Android 2.X apps to even look good on a 7” display. Many of them are blocky, because they were designed for a maximum of 5” displays. At a minimum, Amazon would need to write custom apps for mail, calendar, and address books. I can see Amazon encouraging users to use web sites via Silk versus apps as well and they would need to beef up Silk’s browser to do this. Today’s tablet browsers have limitations, limitations Amazon’s Silk could remove. One simple issue is tablet browser’s ability to access the file system. The iPad’s browser, for example, is unable to upload photos to Picasa. This is why you need an app for that. Silk could conceivably remove the barrier.

Processor, Storage and RAM

While it doesn’t necessarily need more of this for a better experience, the competitive optics demand a bump, particularly on storage. There’s no reason to move beyond the OMAP 4, particularly if the $199 Fire has the TI 4430, which can easily do 1080P HD video. RAM could very well stay at 512MB, but for the optics, would most likely move to 1GB. Storage would definitely bump beyond 8GB to at least 16GB. Apple has made storage the break point for iPad, and Amazon knows they cannot be at a disadvantage, even with Amazon Cloud Storage as the backup.

Living Room Entertainment with Remote Control

Here’s where it gets interesting. The $199 Fire is designed for individual video content. The step-up $299 could be positioned as the living room alternative to the “over the top” set top box. By providing a simple HDMI 1.4 port out and a remote control, consumers could watch all the 1080P TV and movies from Amazon Prime and Amazon VOD. Consumers are always looking for a way to justify that extra $100 and this alone could be the reason. To accomplish the same this on the iPad, the consumer needs to buy the expensive HDMI connector and have an iPhone, load the “Remote App”, and setup AirPlay. The other Apple alternative is to buy an Apple TV, and extra $99. Amazon could have a cost and simplicity message over Apple in the living room.

Optional Living Room Dock

Taking the living room video usage to the next level, Amazon could offer an optional $29.99 dock which makes living room video even easier. Place the $299 Fire into the dock and it gets power, HDMI out to the HDTV, speaker out, and Ethernet. This would be an easy way to connect the Fire to the TV. It also provides another justification to buy this over an “expensive” $499 tablet that doesn’t provide this option.

Camera and Mic Enable “Entertainment Assistant” App

If the $299 Fire has a front facing camera and microphone, Amazon could “listen” or “watch” the content you are consuming in your living room. This would be user-driven as not to be “creepy”. Think of it as Pandora for all types of content, including TV shows and movies. The user could point the Fire to the TV, press a button and a few seconds, an in-context search result would result. In addition to the news and social media results, it would also show relevant results from the Amazon store.

All it would take is for Amazon to index what they already have. They have access to 18M pieces of content; TV shows, movies, songs, books, and magazines. With Silk, they will also know every web site you access, where you shop, what you buy and how long you stay there.

Even without any access to the rich Amazon data, simple Evernote was able to extract “Dallas” from this photo. Google Goggles is able to extract “Fox Sports” too. Now imagine this capability with Amazon’s access to basically all content and wherever you have ever browsed.

Camera to Improve Shopping

At $299, consumers will expect a camera, maybe even two. What’s its primary role? Shopping, of course. What? Yes. Like I said before, everything needs to lead to the Amazon store. The camera could serve as an augmented reality try-before-you-buy feature. Amazon is great at selling physical books, DVDs, electronics, and toys, but what about items that are better sold in a retail store?

Clothing: In conjunction with the TV and remote, see what different clothes look like on you and get the perfect fit, too. The camera is taking videos of you and overlays the clothes on you. What to change the color or size? Just use the remote.
Jewelry: Watches are interesting. Will the face be too big on the wrist? Is it too masculine or feminine? Use the Fire to see what it looks on you before you buy it.
Shoes: Afraid of getting the wrong size or that on you it looks ugly? Print the Amazon Sizing Grid. Take the picture with the Fire of your feet on the grid. See how it looks on you; get the right size shoe, including the correct width. Now that it has this much info, why not now introduce custom show sizes?
Home: How will those towels look in your bathroom? That patio furniture on your patio? That lamp on your end table?
You get the idea; use the camera with augmented reality to make the shopping experience more fun and with less risk.

Camera for Universal Videoconferencing
What if your parents use Skype and you use Apple Facetime? One of you needs to change programs or you don’t get to communicate with each other. Amazon, with its data center prowess, could become the “universal adapter” for video services, and make money doing it. Skype, FaceTime, Google Video, Yahoo Messenger, it doesn’t matter. If you use Amazon’s service, you can connect to all of them. A stretch? Maybe, but remember, via Silk they know every site you go to and have a login as well. What’s to stop from the “embracing and extending” if they can further lock in customers?

A Note on Living Room Gaming

Amazon could relatively easily use the dock above, the included remote to enter living room gaming. But they have a big issue. Android 2.X looks horrible on the big screen. Even Angry Birds. I have tried racing games, too. So Amazon would need to further break, or fork, from stock Android to make this happen. Developers would need to do this, too. When or if Google opens up Ice Cream Sandwich could be the time this happens. I cannot imagine Amazon going after living room gaming without ICS, although tempting.

Conclusion

I have no inside information whatsoever on any future Amazon Kindle Fire. BUT, it only makes sense for Amazon to introduce a higher-priced, higher-feature tablet to intercept the 10″ competitors. Also, given Amazon’s business model, these features must drive Amazon.com store revenue, too. This $299 Fire as I have laid out does all of these things.

The New Kindles=Razor and Razor Blades with eBook Readers

The new Kindles, with prices at $79 and $99 finally introduces the concept of the razor and razor blade business model to eBooks. We are all familiar with the idea of razor companies creating very cheap razors and then getting people to come back and buy a never-ending supply of razor blades to use for shaving.

We in the tech world already have a product that fits a similar model with printers and the continual need for ink. Printer makers make next to nothing with the printer hardware and make all of the money on the ink.

Now Amazon is blazing new trails with their two new eBook readers at price points that are almost give away the hardware. This is quite an interesting turn of events in the eBook reader market. When the Kindle first came out it was $399. The only people who bought it at that price were what we call early adopters. However, they became hooked on this eReader and once the first Kindle established that this product category was not a fluke, the competitive market kicked in. Within two years of the Kindle’s release, the competitors undercut the Kindle’s price by as much as $200.

But as more and more people bought the Kindle, Amazon was able to get better deals from suppliers and their costs came down as well. Last year they lowered the Kindle’s price, with ads to as low as $129. But with the new Kindles they break the magical $100 dollar price barrier and in turn have basically introduced to the market the eBook equivalent of the razor and razor blade business model for electronic publishing.

This is especially important since they have over 1 million commercially published books for purchase as well as hundreds of thousands of free books to add to their overall eBook distribution. What this does is virtually assures that Amazon maintains its lead as the world’s top eBook publisher.

This move should not be too much of a surprise though. The basic law of manufacturing is that the more you make, the lower the prices of the product. Once Amazon was building a million units at a time, they started getting preferential pricing on every component. Over the life of the Kindle Amazon has sold millions of these devices thus making it possible to finally break the $99 dollar barrier.

Although some smaller brands had already broken $99 dollars, it is Amazon’s move now that changes the game completely. The end result is that the market will move even faster from physical books to electronic books, magazines, newspapers and more. Many more people will, at this price, be enticed to jump on the eBook bandwagon and you can bet that both of these models will be hot sellers for the holiday.

But the fact that Amazon is driving this razor/razor blade model into ePublishing is very important. It will set the tone and define the role of standalone eBooks and push the concept of ePublishing into the mainstream even faster than many of us had expected.

It is a very good move for their business and it solidifies Jeff Bezos’s overall goal to become the worlds #1 eBook publisher and it will more than jumpstart the next generation of electronic publishing by making book reader affordable to all.

Unanswered Questions about the Amazon Kindle Fire

Amazon threw their axe into the tablet sea Wednesday with the launch of the Amazon Kindle Fire. On paper, the Kindle Fire seems like a killer value proposition. For $199, you get continuous computing access to 18 million books, movies, TV shows, music, newspapers, unlimited cloud content storage, and fastest web browsing. And all this at less than half the price of the Apple iPad 2. There are a few important, unanswered questions that could determine whether that deal is too good to be true.

Delivered Responsiveness

Amazon had a great showing at their launch event, but attendees weren’t able to freely touch the tablet themselves. Demos were carefully scripted that showed how good the responsiveness was. I remember how amazingly responsive the TouchPad tablet demos were, only to be disappointed at launch with the lags. The lags were quickly fixed with a patch a few weeks later, but the damage was done. Basic pinch, zoom, page turn, app load and app close must be responsive or it will just feel cheap. Buying a tablet with bad touch is buying a car with a loose steering wheel and a missing tire.

Display Quality on Videos and Photos

At 7”, to effectively see video content at the same size versus a 10” tablet, users must hold it closer to their face. Will we be able to see pixels? Hold the original iPhone close to your face, play a video, and you can see the pixels. That for me could be a deal breaker, but hey, that’s me. At $199, the Kindle Fire is a less considered purchase, but still considered. Heck, consumers return $5 food items because they didn’t like it, so don’t think they wouldn’t return a $199 Kindle Fire if it didn’t do what they expected.

Video Content Quality

I am one of the few people who own a Google TV. While I like the Amazon streaming service, it can get quite pixelated at times. It happens a lot more than it happens on Netflix, too, which leads me to surmise that it’s an Amazon issue. Bandwidth won’t be an issue on the downloaded content, but, again, what about the quality? I have downloaded movies from Amazon Unbox on my laptop and sometimes they are pixelated in spots. My laptop is 1366×768 on a large display and the Kindle Fire has 1024X600 resolutions at 7”, so probability will hopefully be small. The final question is how 16:9 content looks on a 16:10 display. Will there be black blocks on the top or bottom of the display or will the content be zoomed in and possibly blurry?

Software Storage Footprint

With 8GB of storage, users will need to be very choosy with what movies, TV shows, music, games, apps and app content they store on the tablet. So the software storage footprint gets important. For example, if it takes 2GB, that leaves 6GB left for apps and content. The Amazon Cloud storage is great, but who wants to be deleting and re-downloading songs and apps to make room for a downloaded movie or a game that requires a huge, secondary download after install?

Let’s take a look on iTunes at the popular movie “X-Men: First Class”. It packs a 1.79 GB download. While I don’t think the Amazon “portable” version will weigh in at this size, users will still need to think about their storage, and that’s never good.

Silk Web Acceleration

Silk promises many things, and to the user it promises faster web page downloads for a more enjoyable browsing experience. It could, potentially, eliminate any browser compatibility issues with the device and a web page. For example, even if the Silk browser didn’t support the latest or oldest web standards, by pre-rendering certain elements of the page, the user wouldn’t detect a thing, only that they can interact with the web page.

This begs about 100 questions, but I’ll leave that for another analysis. I do have a few I will highlight.

Privacy: Amazon knows everywhere I’ve been. Is there a way to opt out? How will it protect my personal information ?
Standards: Which will it support, which won’t it?
Security: Will it capture my passwords?
Control: Will user have any kind of control over which sites get “silked” and which ones don’t? I can’t expect Amazon to pre-render every site correctly, particularly the smaller ones.

Conclusion

On paper, the Amazon Kindle Fire appears to provide an exceptional value proposition for the consumer who is on a budget and cannot afford the iPad 2. There are, however, many unknowns that have yet to be determined that could impact the user’s experience. My experience with Amazon is that they under-promise and over-deliver. It’s been that way since their existence. I don’t think they are going to stop that given the importance of Kindle Fire to Amazon. I ordered mine within 5 minutes of the “doors” open up and I’ll hopefully have the answers to these questions above.

Kindle Fire Threatens Google More Than Apple

Much of the coverage of Amazon’s announcement of the Kindle Fire has, understandably, focused on the potential competition with Apple’s iPad. While the two products are clear competitive in the sense that some consumers will pick one and forego the other, it is entirely possible that Amazon will sell millions of Fires without making much of a dent in iPad sales.

A much more interesting issue is the impact of the fire on Google. At first glance, Amazon and Google are sort of partners in the Kindle project. The Fire runs on a version of Google’s Android software and Google is the default search engine on the tablet (a privilege for which Google is probably paying.) But a couple of things Amazon has done take aim at Google in ways that have to be causing some discomfort at the search giant, which is already facing serious challenges to its core businesses from Facebook.

First, there’s the matter of Android. To understand what going on, you have to realize the distinction between “Android” and “Google Android.” Android started out as an open-source operating system, but Google has been progressively tightening controls. To use any Google branding or to have access to Google services such as the Android Market or the Google Maps app, a manufacturer must meet Google’s terms and conditions. For the current Honeycomb version of Android, “Google Android” is the only option because Google has not released the source code.

Amazon took a different route. Earlier versions of Android are freely available and Amazon took the code for Android 2.3 (Gingerbread) and modified it for its own purposes. This is perfectly acceptable and legal under the Apache 2.0 license that covers Android. It’s not clear how compatible the Fire software is with existing Gingerbread apps, but it is clear this is not a huge concern of Amazon–and that there is nothing Google can do about it.

Google now faces the very real prospect that the first, and perhaps only, successful Android tablet, while built on a Google software platform, has nothing to do with Google. In particular, it does not use any of the Google services, other than basic search, that were Google’s rationale for building the Android platform. The Android business model was giving the software away, but making money off the users it delivered to Google services. Fire, however, is designed to use and promote Amazon’s services, not Google’s. In a very real sense, Amazon may just have stolen Android out from under Google’s nose as far as tablets are concerned.

As Chris Ziegler writes on ThisIsMyNext.com:

Amazon now stands poised to take one of Google’s most critical assets — Android — and turn it against them. Praise for the Fire’s deeply-customized version of Android 2.3 has been nearly universal, and make no mistake, there’s no going back; this is Amazon’s operating system now, built atop a road-tested core that Google served up free of charge.

The other significant threat Google is Fire’s SILK browser. When running in its default mode, the browsers computational chores are split between the Kindle and Amazon’s Elastic Computing Cloud (EC2.) This architecture means that Amazon will be able to observe, and probably log, everything Fire users do on every web site they visit. (The SILK terms and conditions are silent on the uses that can be made of this clickstream data beyond incorporating the existing Amazon privacy statement.)

Amazon has built its business through deep analysis of the data it collects from users of its sites. But until now it, like Google and Facebook, only has access to the clickstreams users generate while on their sites. With SILK, Amazon can observe what users do on every site they visit. The privacy implications of this are a subject for another time, but the wealth of data could give Amazon and enormous commercial advantage.

As Michael Mace writes on his MobileOpportunity blog:

This will be a fun space to watch. Apple and Google will both feel pressure to respond to Silk to prevent Amazon from getting a decisive lead in mobile web apps. Maybe just the threat of Silk will be enough to finally drive some innovation in the mobile web platform.

I may be indulging in wishful thinking, but there’s a possibility that ten years from now we’ll look back on Silk as the single most important thing in today’s announcement.

Or not. It depends on what Amazon’s agenda is, and they’re not telling.

Why Amazon’s Silk Browser is a Big Deal

In my opinion what Amazon has created with their Silk browser is the most interesting part of their Kindle Fire announcement.

One of the key reasons is because it is an example of the kind of differentiation I have been ranting about lately – especially around “tablets.”

I have been writing quite a bit about my frustration with a dearth of differentiation by consumer products companies. One of the key points I have been hammering home is the need to bring something unique to the table when creating consumer products.

Amazon has done just that with their Silk browser. Specifically what I mean is that they could have simply shipped any number of browsers on the Fire yet they decided to create their own. Why? Because no browser on the market fit their vision for a browser with an emphasis on consuming content and media tied specifically to Amazon’s cloud computing vision.

That last sentence is why I feel Silk is a big deal for Amazon. Myself and many others tend to lean in the direction of our computing future taking place in the browser.

Anytime I hear someone is working or releasing a browser I tend to look at it from the viewpoint of our future with a de-centralized computing platform where the browser is the new OS.

Amazon may very well be looking to- and innovating for – the long term future with Silk. What’s more is they are bringing their own vision to the table with this browser. They are thinking about it in terms of their own unique cloud services.

In fact what is very interesting about Silk is that I don’t believe it exists to differentiate Amazon’s hardware but rather to differentiate Amazon’s services.

If that is true then what is to stop them from putting the browser on other platforms like Android, iOS, Windows or OSX? Nothing, and that is exactly what I think they will do.

Amazon, I believe, is brilliantly going to create an ecosystem tied to their services and then release hardware agnostic software that uniquely take advantage of the breadth and depth of Amazon’s services.

At a fundamental level this is also Google’s strategy, however at this point in time I feel Amazon has more to offer and a better chance at success. Not to mention more consumer trust.

My analysis of what Amazon is doing with Silk is going to be an evolving one as I experience it more for myself and observe the decisions Amazon makes related to it.

However for now by bringing a browser to market that takes advantage of key Amazon services that no other browser can do is a fascinating initial strategy.

One of the reasons I say that is because what if Amazon doesn’t believe that a general browser is the browser of the future? Perhaps they can envision a future where consumers use multiple browsers to get differentiated experiences with services offered by companies.

If the browser is the OS of the future then that could seem logical. We choose operating systems today based on our preference of UI, experience, etc and what if the same is true of browsers in the future?

So Amazon focuses their browser around media consumption, publishing, reading, as well as customer loyalty to their services. Therefore when consumers want Amazon services they use the Amazon browser. When they want Apple services they use Safari, when they want Google services they use Chrome, and when they want Microsoft services they use Internet Explorer (a name I hope changes.)

I use different apps for different tasks today so I don’t believe it is a stretch to think that I may use different browsers for different tasks or use cases in the future.

In fact in this future it is possible for me to consume services from a range of different providers rather than simply commit to one service providers ecosystem.

This is all theoretical analysis of course but I find it very interesting to think about related to the future of computing.

Now back to present. Regardless of where Amazon goes with Silk in the future I do feel they are orienting themselves to take advantage of the cloud computing future in new ways. And specifically they are creating key hardware and software technologies that are setting the foundation for Amazon’s future as a services company.

AWS: Amazon’s Secret Weapon

Most consumers think of Amazon.com as a company that sells books and a whole lot of other stuff. But it is also a deep technology company that has turned its technology both into a product and a big competitive advantage.

Amazon Web Services is a vast online computing infrastructure that Amazon both uses itself and sells to others. AWS began in 2006 as a way for Amazon to sell surplus storage as its Simple Storage Service (S3.) But it really blossomed when the company added Elastic Cloud Computing (EC2), which lets customers rent virtual servers.

As AWS has expanded, it has offered increasingly sophisticated services that let companies create complete virtual data centers. Because of the ability to get up and running with no capital investment and to scale quickly and cheaply if demand takes off, AWS is immensely popular with web startups. Many established web businesses run on it as well and ithas just gotten approval for use with most unclassified federal government operations.

The AWS user interface is something no one but a software developer should ever encounter, but the Kindle Fire can be tought of as a firendly face for the cloud services. The vast storage capabilities of S3 and the CloudFront content delivery network power Amazon’s streaming media capabilities. AWS also provides the storage and computing power that let you, for example, begin reading a Kindle book on a phone and download it to a Kindle device and pick up reading exactly where you left off.

Others, such as Microsoft and, of course, Google, offer extensive cloud services. Apple is trying to catch up and I expect we will hear a lot more about iCloud as part of its iPhone announcement Oct. 4. But AWS’s extensive programming interfaces and Amazon’s experience in hitching its infrastructure to consumer services give it a unique leg up on the competition.

And interesting test of just how big an advantage AWS is will come with the performance of the Kindle Fire’s Silk browser. Browsers have been the weak point of all tablets because the complexity of rendering complex modern web pages can overwhelm their relatively limited processing power. This is why even tablets that claim to support Adobe Flash generally do so really badly.

Silk splits the processing burden of rendering pages between the Fire and EC2, with much of the heavy lifting done in the cloud. Amazon officials were not very forthcoming about the technical details of Silk and were not very generous in demonstrations of its abilities, so I am going to reserve judgment until I have a chance for a hands-on trial.

If it works as promised, it could be an important, unique advantage for Amazon. Among potential competitors, only Google has to sort of cloud infrastructure that is required, but Google doesn’t make devices and the structure of Android would make it very hard for it to achieve the tight device-cloud integration needed to make something like Silk work.

Kindle Fire: The Disruptive Power of Amazon

Amazon.com launched its long-awaited tablet, the Kindle Fire, today and once again established its place, alongside Apple and Google, in the Bit Three of economic disrupters. My colleague Tim Bajarin has written about the details of the $199 tablet and why it will be a game changer. I am going to focus on the impact of the Amazon business model.

One reason that every tablet that isn’t an iPad has struggled badly is that they haven’t given consumers a compelling reason to want to own one. The iPad offers a great user experience based mainly on a rich system of inexpensive apps offered by Apple and a galaxy of third-party developers.

Competitors have offered products with a somewhat worse experience for about the same price or a much worse experience for a significantly lower price. Unsurprisingly, consumers found neither model appealing.

At this point, we have to assume that the actual performance of the Fire when it ships Nov. 15 will be close to what Amazon demonstrated on Sept. 28. Attendees at the event were only allowed to look at, not use, the prototypes on hand. But if it does, Amazon will be hard-pressed to meet the demand.

But the real prize for Amazon will be Fire’s ability to sell, something that should let the company quickly recoup the $50 to $100 in subsidy implied by the $199 price. The first thing it will sell is $79 annual subscriptions to Amazon Prime, an odd but highly successful bundle of free two-day shipping on all Amazon goods and unlimited access to Amazon’s large library of streaming movies and TV shows. My guess is that the conversion rate after the one-month free trial of Prime included in the Fire’s price will exceed 50%.

The Fire also looks to be a beautiful e-reader that will sell lots of books. (And Amazon protected its flanks by announcing three new monochrome eInk Kindles: an entry-level product at $79 and a new touchscreen version, with and without free 3G wireless, at $149 and $99. Those are impulse purchase prices that will probably finish off the printed book.)

Although Fire’s software is based on Android, it is not an official Google Android device and will probably not have access to the official Android Marketplace. I don’t think this is much of a concern to Amazon, because it stands ready with its own App Store, one more way to sell stuff. (In general, the fact that Fire runs on Android is about as apparent to the user as the fact that TiVo runs on Linux, which is to say not at all.)

Apple is not likely to be quaking at the prospect of Kindle Fire, nor should it. While the iPad and the Fire will compete at the margin–people only have so much money and only want so many gizmos–they are very different products with very different business models aimed at very different markets. Barnes & Noble and Google have a lot more reason to be worried. So does anyone else who sells stuff, whether the goods are digital or physical.

The Kindle Fire is a Game Changer

After months of speculation, Amazon finally rolled out the Kindle Fire this morning, their version of a cross between a super eBook reader and a small tablet. But make no mistake, this product is a game changer. And it has the potential of really helping refine the market for both future eReaders and tablets.

The first game changer is its price. At $199, it sets up a real battle with the other Android tablet makers and will give them serious headaches going forward. And even though it is a 7 inch color touch system optimized for reading, its use of Android’s Gingerbread OS (Android 3.3) gives it some serious OS power that lets it be a tablet in the true sense of that word. Especially since it supports full Flash and any other cloud based services.

The second game changer is its tie to their Prime Service. This is a huge deal. What it represents is a device (Kindle Fire) now tied to a full yearly subscription service. As you know, Prime was initially set up to cover shipping costs for all of the products one buys from Amazon. But it is now being extended to include their movies, music, etc. And it is being applied to any of this content that will be used on the Kindle Fire as well. What is interesting about this is that it is a subscription model masked as a much broader service fee that includes the coverage of all shipping fees of products purchased by Amazon. This is one of the great bargains alone and throwing in the other services like streaming media so that it is covered in this overall cost is brilliant. And consumers won’t think of this as a subscription service.

Third is the actual business model, which is very different from Apple and the other tablet makers. At $199, this device is clearly being sold under cost. My sources in Taiwan say that the bill of materials on this is somewhere between $229 and $249. But Amazon appears to be OK with this since they will amortize part of the payments that come from Prime, bought books, movie and music and perhaps other purchase to subsidize the actual cost. As I wrote in my PC Mag column about this in August, I see Amazon being perhaps the only one, besides Apple, that could deliver this type of model in which the device is sold under cost and future sales and services are amortized as part of their ability to cover costs and even have some profit tied to the device itself. (http://10.0.1.11:63651/)

The fourth game changer comes with their Silk Browser. This browser cache’s key content from a site like Time Magazine, such as its cover art, magazine format, etc, and then once connected only goes out and updates the new content that is available. The result is that the page itself can be loaded very fast. This is an amazing way to make a browser work with key content. This means that publishers and other Web content vendors can work with Amazon to make Web sites optimized for the Kindle FIRE and fully utilize Silk’s ability to balance its role as content mediator between local content and the cloud.
And software developers can also create special versions of their apps just for the Kindle fire as well.

Please note that the name of the device is the Kindle Fire. This is an important distinction. As Jeff Bezos has said on numerous occasions, if Amazon entered into this market it would be by making reading books and magazines the center of its design. And everything else they now have with it is icing on the Amazon Kindle Fire cake.

I believe the Kindle Fire will be a very big hit for Amazon. And it will be, along with the other 2 new versions of the Kindle, a very hot seller for this holiday season.

So how will this affect Apple and the other tablet vendors? For the Android tablet makers this is not good news. They have priced their products in the $399 and up price range which is designed to take the profit from the purchase of the tablet itself. And none of them, besides Apple, owns an eco system of content that can be leveraged and/or amortized to help keep the price of the devices down. This will only make it harder for them to compete with their current tablet designs and business model.

As for Apple, they do own an eco system of software services that they could use to offset costs if they want to. But I doubt that will happen. And while Apple does encourage book reading on the iPad, that is only one of the apps or uses for this device. From Apple’s viewpoint, the iPad is more an extension of the personal computing experience. Yes, it handles movies, TV and music well. But it also plays games with stunning graphics, allows for all types of interactive learning experiences and can be used for productivity in all levels of business. The Kindle Fire is not designed for these types of uses and instead is targeted more at the consumer market that wants a great reader and would also enjoy watching movies, TV shows and more entertainment driven apps as part of their “tablet” experience.

The Kindle Fire is not an iPad killer. In fact, as my son Ben pointed out in a recent Techpinion’s piece, there is no such thing as an iPad killer.

Rather, this is a worthy competitor to the iPad and will be of interest to a very broad audience who wants this type of device and can live with a small screen and a more focused entertainment edge it brings to a device like this.

Apple’s iPad will still be the gold standard for tablets and will always be in demand from a segment of the audience who wants their tablet to be more an extension of the PC experience. And both will do extremely well in this marketplace.

7″ Media Tablets Like Kindle Fire…”Dead On Arrival”?

UPDATED with Amazon Kindle “Fire” references.

A few weeks ago, TechCrunch reported that Amazon’s 7″ Kindle tablet was “very real” and would ship for the 2011 holidays. (UPDATED: Now rumored to be called “Kindle Fire“. ) Almost a year before that, Wired’s Brian Chen reported that on an earnings call, Jobs said, “the current crop of 7-inch tablets are going to be DOA — dead on arrival.” So the stage is set for an interesting war of beliefs and concepts this holiday shopping season. In one corner, the world’s most trafficked internet retail stores and Kindle inventor, Amazon, and in the other, Apple, the most valuable company on the planet and inventor of the iPad. Will the Amazon Kindle Fire tablet be treated in the marketplace with very little respect or will it shock everyone like the original Kindle? It really comes down to the basics of the consumer value proposition.

Many Variables at Play

With a considered technology purchase, consumers actually do a bit of research before they buy. It can be as simple as asking a geek friend for advice, doing a Google search for reviews, or as complex as side-by-side feature analysis, but in the end, it’s still research. Consumers looking at buying a 7″ or 10″ tablet will look at variables like perceived price, value, content, brand, size, display, and weight. More meaningful, though, is how they apply those variables to what they believe they want to do with their tablet and the location they will do it.

For the sake of this analysis, I will use the iPad 2 as representative of the 10″ tablet and the combination of a Nook Color and the rumored Amazon Kindle “Fire” tablet as the 7” designate. I will also assume that each tablet has access to the same books, magazines, movies, videos, music and games. The only “iffy” one may be games given the iPad’s tremendous lead today.

Potential Advantages with a 7″ $249 Tablet (Amazon Kindle “Fire” Tablet)

20-30% lighter and even smaller means easier to carry and hold for almost every usage model. Anecdotally, I have heard that women prefer the 7″ tablet because they are easier to carry.
Half the $499 price of the cheapest iPad 2. Not only is the tablet less expensive, but I will guess that every accessory will be less expensive, too.
Free subscription to Amazon Prime, which means free access to Amazon Instant Video Service. Again, this is rumor, not confirmed.
Most of the same books, magazines, videos, movies, web content as the 10″, $499 tablet.
Simpler, as in fewer choices for apps and content providers, yet plays the same content. There is one button only.
Standard micro USB power and data cable. These are everywhere in the house, your cars, and at the local convenience store. You can also charge from your PC, unlike an iPad 2.
More durable, given plastic and rubber design. I don’t care when someone drops my Nook on the carpet. I shriek when someone drops my iPad 2.

Potential Advantages with a 10″ $499 (iPad 2)

Twice the viewable image area of everything you see, like pictures, videos, books, newspapers, and web pages.
Battery life, although tough to predict. Apple claims up to 10 hours for web, video, and music while Barnes & Noble claims 8 hours for reading.
Use more complex applications and basic activities are more responsive, given dual core processor and better graphics subsystem. Think better looking games, richer video and photos, and more complex web pages.
Watch videos and listen to music from the tablet to an HDTV, PC, Mac or other AirPlay compliant device. Maybe the Kindle will have some sort of DLNA capabilities, but from what I’ve seen on Android tablets today, it won’t hold a candle to the iPad AirPlay.
Take pictures and home movies. While I scoffed at this at first with the iPad 2’s low res camera, I find myself taking pictures and videos with it. It’s just so convenient to take it and show it to someone immediately. Maybe I will stop doing this when iCloud immediately uploads my pictures and videos, but we will see.

Conclusion

As you can see, there are potential benefits in a less expensive, smaller and lighter 7” media tablet like the Kindle “Fire” as there are in a fuller-featured, twice as expensive, 10” media tablet. I believe that if the Amazon Fire tablet ships this as rumored above and with Amazon Video on Demand, it will sell extremely well. That is, given competition stays still, which it rarely does. So does this mean Steve Jobs was wrong? No, because when he made that statement a year ago, 7” tablets were priced right on top of the iPad 2 with a lot less content and a much degraded experience. A lot has changed since then and a lot will change in the future. And I am sure of that.