Market Insight

Amazon Releases New Kindle Fire Tablets

September 26, 2013


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Online retail giant Amazon is to release updated versions of its Kindle Fire tablets. The new tablets will include a new Kindle Fire HD as well as a new model dubbed the Kindle Fire HDX. The HD tablets are expected to  be priced from $139, while the 7-inch HDX pricing will start at $229. An 8.9-inch version of the HDX will cost $329. There are also larger storage space versions of the tablets, and those with additional LTE mobile connectivity, from AT&T and Verizon for higher prices. At this time, international release for the Kindle tablets is unknown. 

Release dates for the items will be Oct. 18 for the 16GB, 32GB and 64GB HDX 7-inch models with WiFi only. The WiFi -plus-mobile models are expected to ship on Nov. 14, just two weeks ahead of Black Friday 2013 in the U.S.

The HDX tablets will feature a faster processor, a 2.2GHz quad-core and 2GB of RAM to allow for better gaming, video and multi-tasking; the display has been upgraded to be a true HD experience at 1080p. It features 1920x1200 resolution at 323 PPI which the company claims will provide a colorful display that will "go beyond standard HD."

As with previous generations of the Kindle Fire this year's models run  a version of Google's Android operating system with additional Amazon services including cloud services, a content-forward user interface, built-in media libraries, productivity apps, and low-level platform enhancements to integrate Amazon's digital content and improve performance for Kindle Fire tablets. Amazon has depreciated its public reliance on Google's software and has moved to brand the operating system as Fire OS 3.0, code-named "Mojito in its product marketing pages."

Historically Amazon has been playing a long game with its Kindle Fire family of tablets. Previous generations have been sold to consumers at lower prices than they cost to produce, develop and market as the company has tried to build market share. With the release of the Fire HD in 2012 Amazon began trumpeting the idea that it was selling high quality devices and making up the margins on content, an idea the company continues to promote to this day as it sells the devices at low cost in order to grow its installed base and extend reach.

However, the realities of the digital content business mean that IHS remains skeptical of how much of the losses that Amazon has been making on the devices are presently being 'made up on content'. Simply put: it is possible to make money on:

i.) app stores, given the industry-standard take of 30% going to the platform; however due to low average prices for both apps and in-app purchases Amazon's volumes would have to be appreciable to offset the loss on the devices.
ii.) ebooks. The margins for service providers in the US on ebooks have improved since Apple entered the market with the (now blocked) agency model, and where Amazon was previously taking a loss relative to the wholesale price it is now understood that the company is seeing positive margins on most book sales.

However the music and video sides of the business remain more challenging for the company. In digital music, Amazon has been competing on price to build share in a traditionally break-even business; while the online video business remains notoriously difficult. Although margins on the traditionally loss-making US digital purchase (EST) business have been improving recently, Amazon has been investing heavily in video content for its Prime subscription service in the US (which also offers discounted shipping, and ebook lending). As a result we believe that, seen holistically, Amazon's margins on the Kindle are likely to be improving, but there may still be some distance to go before the company sees a significant positive return on the device.

In this context though, the new devices' Mayday feature, which offers 24/7 tech help as well as personalized app recommendations, is particularly interesting. Although often lauded for its attitude towards customer service, as an online retailer Amazon has lacked a human interface. Unlike service providers such as Apple, which offers customers the option to go into an Apple store and receive tech help and recommendations on new products, Amazon has lacked this capability. Amazon's new Mayday service is a step in the direction of providing a virtual shop assistant to Amazon customers. While the initial purpose is two-fold-to provide tech help and app recommendations, it is possible that Amazon will branch out and begin to provide product recommendations. The video connectivity of Mayday allows for face-to-face human interaction which should help to build greater trust between Amazon's customers and the retailer. The results are some very interesting possibilities (e.g. a virtual shop assistant) for the retailer should it look to expand the Kindle Fire from a shopping cart for digital goods into a cart for the entire Amazon store.

Geography
North America
Organization
Amazon
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