29 September 2011

The Penumbra of the Kindle Fire

Amazon CEO Jeff Bezos certainly created a buzz with his Kindle announcements yesterday.  Word of the new Kindle Fire tablet  and the significant price cuts on the e-readers spread like wildfire, even to friends and loved ones who would sneer at wearing a pocket protector. Even though Amazon’s tablet will not hit the market until November 15th,  the penumbras from the Kindle Fire may have blazed new paths in the technology industry.

RIM, the maker of the Blackberry Playbook, dropped the price on their 7" color touchscreen Android tablet by $200.  The new price of $299 probably leaves a very thin profit margin if not a loss per unit.  But the Kindle Fire is strikingly similar to the Playbook, but does not have any cameras, has a different O/S and still costs $100 less than RIM’s tablet.  With the declining popularity of the Blackberry as a smartphone, the stiff competition from Amazon’s tablet might spell R.I.P for RIM

The Amazon Fire O/S is a forked version of an old version of Android.  Essentially, the Amazon Fire is an Android tablet without the Android Marketplace or Google branding, yet Google apps will be available for Amazon’s tablet.  This could threaten Google’s position as pretender to the tablet throne behind Apple’s I-Pad.  If Google anticipated using Motorola Mobility as a means to build their own Android tablets, a successful Amazon Fire may make that $12.6 Billion purchase as an expensive trinket.

Other businesses are poised to profit from the advent of the Kindle Fire.  Periodicals did not sell particularly well on the E-Ink Kindles since readers like glossy color pictures.  So the earlier Kindles ceded the cyber magazine market to the I-Pad.  But now the Kindle Fire has a bright 7" color screen.  Hours after the Kindle Fire kickoff, Amazon announced that it had inked a deal to Hearst and Conde Nast publishing groups.

Publishers found it easier to come to terms with Amazon than with Apple as Amazon was willing to share customer data with the publishers.  Dead Tree publications have been suffering a slow death due to the internet.  Condé Nast is striving to buck the diminishing profits due to the internet by charging more for their digital magazines on the Amazon Fire than they do for print editions. After last year’s fracas with publishers about book prices, Amazon demurs to publishers to set their own prices, as long as Amazon gets its 30% cut.

Recently, the Philadelphia Media Group (owners of the Philadelphia Inquirer, Philadelphia Daily News and Philly.com) offered a $99 tablet as an enticement to subscribing to their publications. Consumers would need to also agree to  a two-year digital subscription to The Inquirer and Daily News for $9.99 a month, or they can get the tablet for $129 with a one-year subscription at $12.99 a month.  That makes for a pretty hefty subscription but at least it could be read on an Archos Android tablet.  Now that the Kindle Fire is captivating the attention of consumers, it won’t be long before there may be other cross promotions.  But with the very affordable $199 price from Amazon, it is dubious how many customers would agree to pay up to $250 more to support a Dead Tree publisher just  to initially save $100 on a new tablet.

By using a forked version of Android, the Kindle Fire creates a walled garden environment.  Some technorati may bristle at the confinement as they like to tweak and tinker with any operating system.  But most users want gadgets that just work.  Apple products prove the point as people will pay a premium for an electronic device that is sexy and easy to use, even if does limit choices to avoid technical conflicts.

Clearly, the idiosyncratic flavor of Android ensures that Kindle Fire’s owners will be tied into the Amazon Apps marketplace which may cover the loss leading Tablet.  But Amazon’s arrangement with publishers to share marketing data also points to ancillary ways to make money.  Amazon may recoop every dollar lost from the hardware sales by the data gained from the Silk browser speeding up internet access by cloud computing.  Amazon could retain and even market that information.

Civil libertarians might be up in arms about all of the data that is available to businesses, but every move on the internet can be tracked by advertising cookies.  Many consumers willingly give their buying patterns to merchandisers for insider prices. Amazon’s aggressively low pricing for the Kindle Fire should entice many consumers to not worry about the marketing data which Amazon is tracking and sharing with partners.

Not everything is shining for Amazon with the Kindle Fire.  Lawyers at Microsoft presume that they can successfully sue any Android device maker.  Even though Amazon entered into a cross-licensing deal that included the Kindle, that was for a Linux based e-book reading platform, not for Android. Cynical speculators can see Microsoft using lawfare as a means to soften up Amazon, which sells goods with a thin margin and is thought to sell the Kindle Fire at a significant loss.  Microsoft might also have in mind keeping their Windows 7 mobile tablets as a prominent player in the mobile marketplace.  Considering how Amazon made nice with publishers by sharing marketing data, some accommodation with Microsoft could be made, possibly by making Bing the default search engine for the Kindle Fire along with lower financial remuneration for potential patent infringement.

In only one day after its announcement, the Kindle Fire has sparked so much business intrigue.  It will be curious to see what moves Apple makes if Amazon’s tablet burns its way to challenging the I-Pad for mobile market dominance.

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