Market Insight

Amazon unveils Kindle Touch and Kindle Fire tablet

September 28, 2011


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Amazon has renewed the Kindle lineup with the some incremental upgrades to the dedicated Kindle eReaders and launch of the Kindle Fire, its first colour screen tablet in its Kindle line-up.

The company launched the new touchscreen Kindle Touch - smaller, lighter, without a keyboard, but retaining the E ink display. Kindle Touch is available in Wi-Fi only and 3G-enabled versions for $99 and $149 respectively. Both will include 'Amazon special offers' advertising on-screen. The ad-free version of the devices will cost $40 more.

Kindle Fire allows users to access all the digital content served by Amazon's services: providing access to 100,000 movies and TV shows available via Amazon Prime Instant Videos (customers get one month of free service); 17m songs from the Amazon MP3 Store, apps from Amazon Android app store, as well as Amazon's collection of e-books and magazines. The content is backed-up in the Amazon cloud, with the tablet's own storage space limited to 8GB. Kindle Fire will be released on 15th of November in US only. The retail price is $199 (£130).

Amazon will not make a substantial profit from digital content even with the launch of the Kindle Fire. Generally, the company is bound by the same onerous digital content deals as other platforms, meaning the business of selling digital movies, TV shows, music and e-books will remain a low-margin one. This is even more pronounced for Amazon given it often sells content at a lower or cost price in its attempt to win market-share from market-leading services such as iTunes, Vudu and Netflix. In some cases, the company has also been known to heavily subsidize its digital offerings. For example, in its high profile promo deal like $0.99 for Lady Gaga's second album, Amazon paid the full wholesale price to Universal Music.

Taking Amazon's business as a whole however, and looking beyond just digital content, Kindle Fire (alongside the lower-spec models) has a significant role to play for the online retail giant. To date nobody has managed to create an umbilical link between digital content and a more conventional retail environment. With Kindle Amazon has created the most convincing attempt at this yet, and they are doing it using established retail tactics - using content to get people in the door, and then sell them other goods, which is exactly how Wal-Mart, Target and other bricks-and-mortar retailers used DVDs. If doing so means Amazon has to take a loss on digital content and an upfront loss on the hardware, then so be it, the endgame here is far more valuable. This is the company, under the same leadership, that ran at a loss for its first eight years of operation as it secured its position in the market.

At the same time the Kindle Fire continues Amazon's strategy of adding value to Amazon Prime, by offering a convenient screen for its most valuable customers to enjoy Amazon's Instant Videos on. The purpose here is clear - to keep Amazon at the forefront of its most valuable customers' commercial activity online. The strategy is reminiscent of pay TV: add more value to the subscription to keep customers coming back for more; first by eliminating shipping costs, then by offering streaming movies. But as with the approach above it is fundamentally about maintaining their position as the primary retailer on the internet.

 

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