Print 105 comment(s) - last by TakinYourPoint.. on Sep 30 at 6:54 PM

Amazon Kindle Fire   (Source: Bloomberg)
Amazon's tablet undercuts the 16GB iPad 2 Wi-Fi by $300

Amazon's entry into the growing tablet sector has been one of the worst kept secrets in the tablet industry. Amazon has already stormed the e-reader market with its line of Kindle devices, so delivering the company's expansive multimedia platform to a more versatile platform seemed like a given.

After a pretty expansive leak earlier this month, Amazon is officially taking the wraps of its Android-based Kindle Fire today. Fortunately, Bloomberg jumped the gun a bit early and revealed that the Kindle Fire indeed will feature a 7" IPS display (1024 x 600), and it checks in at a low $199 (you can pre-order today, but your Kindle won't ship until November 15), which undercuts Apple's entry-level iPad by $300. 

To reach that price point, the Kindle Fire forgoes 3G access, a microphone, and the usual bevy of cameras that come on today's tablets. However, the Kindle Fire does include Wi-Fi (802.11n) and a free 30-day trial of Amazon Prime (an Amazon Prime membership normally runs $79/year). 

The Kindle Fire weighs 14.6 ounces and features a dual-core processor. Amazon says that the Kindle Fire provides up to 8 hours of continuous reading or 7.5 hours of video playback (Wi-Fi disabled). The devices fully recharges within 4 hours via its USB 2.0 port.

While the Kindle Fire has 8GB of internal storage, apps from the Amazon Appstore, music, magazines, and Kindle Books will all be stored on Amazon's Cloud Drive service which makes having a large amount of onboard storage unnecessary.

"Kindle Fire brings together all of the things we've been working on at Amazon for over 15 years into a single, fully-integrated service for customers," said Amazon CEO Jeff Bezos. "With Kindle Fire, you have instant access to all the content, free storage in the Amazon Cloud, the convenience of Amazon Whispersync, our revolutionary cloud-accelerated web browser, the speed and power of a state-of-the-art dual-core processor, a vibrant touch display with 16 million colors in high resolution, and a light 14.6 ounce design that's easy to hold with one hand - all for only $199. We're offering premium products, and we're doing it at non-premium prices."

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By TakinYourPoints on 9/29/2011 7:03:09 AM , Rating: 2
People were reacting the same way to me when I claimed that Android would eventually dominate the phone market and muscle out the iPhone.

Jeff Bezos is smarter than Steve Ballmer and Steve Jobs combined.

He realizes that the real money isn't in the device, its in the attached services to the device. Everyone who bought an iPad the first day they were released paid $500 and nothing more. Anything else was revenue from accessories and purchases from the iTunes Store.

Real numbers say otherwise. Whether you buy content from iTunes, Amazon, your XBox or PS3, whatever, there is a hard limit on profit margins, and it isn't that high. iTunes has about the lowest profit margin of any of Apple's products, and in total numbers it is a tiny fraction of their hardware sales.

Think about it, for music the majority of the profit goes to the RIAA, for movies it goes to the studios, and for applications the lion's share goes to developers. Then there is the cost of running the store (servers, bandwitdh, etc etc).

At the end of the day the profit margins on iTunes has been around 10% since it began. The numbers are in every quarterly filing. I expect that Amazon and Microsoft get similar profit margins on their own services given that wholesale media prices and developer payouts are about the same. In Apple's case, 10% is far below the 25% average profit margin they make as a whole, and well below the profit margins on the iPad (probably their most profitable product).

Purchased media and applications are mainly a way to keep people hooked into a hardware ecosystem, whether it's iOS, Android whatever. In all cases, it is a way to keep people buying that set of hardware, because that is actually where the real money is.

Game consoles like the 360 and PS3 are more what you're thinking. Their hardware initially has low profit margins but they make their money on high margin accessories and game licenses ($$$).

Your thoughts are interesting, but unfortunately they aren't backed up by reality in the case of phones and tablets. Amazon has making as much money as they can from these devices. Don't think the profit margins aren't there, they made money on the Kindle from day one. The original price in 2008 was $400. Economies of scale and dropping component cost have allowed them to drop their prices every year, but the last thing Amazon is doing is selling loss leaders to sell low profit margin software and media.

RE: The beginning of the end of iPad dominance
By Boze on 9/29/2011 7:49:46 AM , Rating: 3
Wait... so let me get this straight.

You're saying that iOS devices have a larger market share than Android devices...?

And you're telling me that's not backed up by reality?

Have you been reading the news lately?

The Kindle Fire is also going to integrate nicely for Amazon Primes users. One-Click Checkout, anywhere there's Wi-Fi? That's the real strength of the Fire, just like being able to buy 950,000 different books and magazines, anywhere at any time, is the real strength of the Kindle.

It isn't the hardware and never has been.

By TakinYourPoints on 9/29/2011 6:47:55 PM , Rating: 2
You're saying that iOS devices have a larger market share than Android devices...?

When did I ever say this? Reading comprehension please.

I said that digital media (books, movies, music, applications) do not have nearly the profit margins that hardware has. Even if sold in quantity it isn't enough to match hardware. iTunes is the #1 seller of digital media in the US, even over Amazon and music sold in brick & mortar stores, and the total net profit it brings in is absolutely dwarfed by what Apple makes selling hardware. Media just isn't that profitable because almost all of the cost (about 70%-80% average) goes towards content creators and licensees, that's the problem.

This is the reverse of the "razor blade" method of selling goods, in that the razor blade handle is actually more profitable than the blades themselves.

You're either totally ignoring the argument or it is flying completely over your head. Just listen.

Hardware is much more profitable than digital media. The only way media can be more profitable is if the hardware itself has razor thin margins (below 10%) or is sold at cost, and both scenarios are very risky given that selling media at a large enough rate to offset the loss on hardware sale is far from guaranteed.

RE: The beginning of the end of iPad dominance
By Boze on 9/30/2011 11:35:29 AM , Rating: 2
I can tell you're either young, or naive.

Possibly both.

Look back at the PS3 and Xbox 360.

Money lost on every single console sold. Xbox 360 at one point in the manufacturing process had almost a 50% failure rate.

And yet now the Xbox division of Microsoft makes money hand over fist.

Digital content margins are ENORMOUS and always have been.

You're using the same ridiculous argument that record executives use for why a 30 year old CD version of a Rolling Stone album is $18.99.

That CD costs a nickel to stamp. The packaging, maybe a buck, and probably not even that much. The recording studio has long since been paid for, along the manufacturing plant that made all the CDs, the paper, the inks, the plastic, even the damn shrink wrap.

It costs $18.99 because people will pay that much for it.

Hardware margins have always been slim compared to digital media.

You're so clueless on this issue that I honestly wonder if you're just a troll.

By TakinYourPoints on 9/30/2011 6:54:06 PM , Rating: 2
This goes back to reading comprehension. Please follow and you'll understand the differences.

I already addressed game consoles several posts ago, well before you brought it up, and the fact that that particular model is what you are thinking of when making your argument. Clearly everything else is either being ignored or has flown right over your head. Let me spell everything out for you.

Game consoles are sold at a loss, but they manage this because they collect licenses from every game sold, and thos licenses carry higher profit margins than other forms of digital media. This eventually offsets the loss on the game console.

Now let us look at something with completely different profit margins, movies, music, books, applications.

The situation there is completely the opposite since most of the profit there doesn't go to the hardware manufacturer like it does with with game consoles. The bulk of that profit goes to RIAA, movie studios, developers, etc etc.

The profit margins and licensing terms between games on consoles and movies/music/books/apps are completely different.

The proof is in the hard numbers. iTunes, the most profitable digital distribution service in the world, has had a consistent 10% profit since its inception, even with the addition of movies, apps, and books. This is below the average 25% profit margins Apple makes overall, and well below the 30%-40% Apple makes on iPads.

I don't understand why you are being so thick headed and ignoring reality. These are two completely different business models. BTW, PS3 and XBox also makes the same profit margins selling movies and music on the consoles. The profit for movies and music on consoles isn't there, its in the games that you buy at Gamestop or Best Buy or wherever.

Media like this again serves to hook people into a hardware ecosystem, whether it is iOS, Android, whatever, but it is far from a large source of income compared to the hardware itself.

If you think Apple or Amazon is making a mint on movies or music, you are mistaken. Quarterly financial statements have proven otherwise for almost a decade.

One last thing that is slightly unrelated but needs to be addressed. The XBox hasn't been making money "hand over fist". Billions have been invested in it and after six years it is in the black by hundreds of millions in net profit. This isn't runaway profit. Compare it to the iPad that made tens of billions within a year, and it wasn't on the back of software, it was hardware.

Anyway, recognize that movies, music, books, and apps don't make profit the that hardware does unless the hardware is also sold for 10% or less. There is a hard ceiling in place due to the numerous payouts to content creators and licensees.

This is a completely different situation from game consoles where the hardware makers are the licensees that get a substantially larger cut from game publishers.

Hope this clears everything up for you.

"This is from the It's a science website." -- Rush Limbaugh

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