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.