With the Kindle Fire, Amazon is making its first foray into tablet computers, a market where Apple dominates with its iPad and nothing else has even made a dent. The Android-based Kindle Fire is an impressive media tablet, and Jeff Bezos understands that the device itself is only part of the equation. It is merely the front-end of a set of end-to-end services which will deliver digital media from Amazon’s servers to people’s hands.
But the Kindle Fire is no iPad, and Bezos knows that too. So he is using something else to differentiate the Fire from the iPad: price. The $199 price of the fire surprised almost everyone. It is $300 lower than the cheapest iPad 2. So even if it is not as fully featured, doesn’t work as smoothly and will launch with a laughably small number of apps (less than 1 percent of the number of apps available on the iPad, which is currently over 100,000), all of that may not matter. Because if it is good enough, millions of people will decide to buy it for $199 instead of spending $499 for an iPad.
One of Amazon’s advantages as a retailer with scale has always been price. And it is using it effectively with the Kindle Fire, which is already the second-best selling Kindle on Amazon (the first is the new $79 Kindle). There is a reason the Kindle Fire is not launching with 3G service, and only WiFi. Amazon had to do everything to get it down to that $199 price point.
Bezos knows he can’t take on Apple head on. Instead, he is doing everything he can to carve out a new space in the tablet market for Amazon, and price is a big part of it. In a letter to customers that is currently on the homepage of Amazon, he “punches Apple hard,” in the words of investor John Borthwick. The letter starts:
There are two types of companies: those that work hard to charge customers more, and those that work hard to charge customers less. Both approaches can work. We are firmly in the second camp.
Bezos made the same point during the launch announcement of the new Kindle line last week. “We are building premium products at non-premium prices,” he said. Apple, of course, builds premium products at premium prices. Will it have to respond by lowering the price of the iPad even lower, or can it stick to the high road?