What Investors Need to Know About Amazon's Tablet

If you take one thing away from the unveiling of Amazon.com's (Nasdaq: AMZN  ) new tablet it should be this: When Jeff Bezos unveiled the price at today's press conference, the person sitting next to me gasped.

Only $199 for that sharp-looking of a tablet?

If you've been holding out on buying an iPad in hopes of a more viable competitor, your time has come. Today, Amazon unveiled its new Kindle Fire. I was at the press conference where the tablet was unveiled and will have more analysis below, but first, the details:

  • Price: Amazon's tablet comes in at $199, which is only 40% of the entry-level iPad price. That's an attractive price point, but it also comes at the expense of some hardware limitations listed below.
  • When can you buy it?: Nov. 15.
  • Hardware: As predicted, the Kindle Fire looks quite a bit like Research In Motion's (Nasdaq: RIMM  ) PlayBook tablet. That shouldn't be surprising since Amazon reportedly outsourced hardware design to Quanta, the company that manufactures the PlayBook. The screen is 7 inches, a size that's quite a bit smaller than the 10-inch screen size Apple (Nasdaq: AAPL  ) uses in iPad designs.

The tablet also lacks a camera, there's no mention of HDMI out support, and it is Wi-Fi only, meaning users won't have the option of getting 3G data service from telecom partners such as Verizon (NYSE: VZ  ) or AT&T (NYSE: T  ) . For some, that will be a deal-breaker.

  • Internals: If you were hoping for a next-generation processor like NVIDIA's (Nasdaq: NVDA  ) new five-core Kal-El processor, you're out of luck. But hey, this thing costs $199; what do you expect? The demo looked zippy, however. And the company did announce it uses a dual-core processor. My money is on an OMAP processor by Texas Instruments (NYSE: TXN  ) powering it. Storage is a meager 8 GB; Amazon repeatedly emphasized cloud-based storage.
  • The interface: Amazon's tablet runs on Google's (Nasdaq: GOOG  ) Android, but this ain't your father's Droid. The user interface is unique to Amazon. Media and recently used apps stream in a "carousel." It's a novel approach that's distinct from other Android tablets.
  • Kindle name: Amazon is using the wildly popular Kindle branding to sell the tablet, but the tablet will feature a conventional backlit LCD screen. If you're a Kindle fan because of its E Ink technology that's easier on the eyes, Amazon also unveiled a Kindle Touch 3G for $149, a Kindle Touch for $99, and a non-touch Kindle for $79.
  • Added services: The main emphasis was on other services you get with the Kindle Fire. It's a unified package that effortlessly combines Amazon's cloud-based storage options, its digital downloads and streaming services, and even leverages Amazon's famed EC2 cloud-computing platform to reduce strain on the processor and make Web browsing more snappy.

The advantages
The obvious importance of Amazon's tablet is that Apple finally has a competitor in the tablet space that attacks some of its core strengths. Amazon isn't failing to undercut Apple like other (failed) rivals have. It's going for an entirely different price segment. Also, Amazon is really focusing on its media offerings. Poor media management has long been a failing of Android offerings in general and will offer something unique that can compete with iTunes and its grip on digital distribution.

The potential
Last quarter, Apple moved 9.2 million iPads, and in the face of several highly promoted tablet launches with large marketing budgets, grew its market share. The number of iPads sold will only accelerate this holiday season. The hope for Amazon investors is that the Kindle Fire will ride aggressive pricing, marketing, brand recognition with the Kindle name, and its unique offerings -- which make it distinct from other Android tablets -- to become the clear No. 2 behind Apple in coming quarters.

That should be an obtainable goal. Other Android tablets are falling flat and Amazon is offering the best-priced Android tablet (you'd actually want to buy) with the best bundled options. Yes, some missing features will turn users off, but the lower price point will attract more. It's clear Amazon had to cut some corners on the hardware end. Development work was clearly focused on the software side, and that was the right call to best utilize the company's strengths while getting the tablet to market in time for the holiday season. Make no mistake: This is a low-margin Trojan horse to pick up mind share in the tablet race before the game is over.

For Amazon, a tablet is a natural fit for many of its initiatives and has limited downside. Amazon has put big bets behind delivering digital media, but has seen its market share stagnate. For example, in online video-on-demand, even Wal-Mart's (NYSE: WMT  ) Vudu has caught up with Amazon's market share, while Apple continues to control 66% of the market. Apple has proven that consumers prefer consuming digital content in the mobile space. For Amazon, this is a natural package for pushing several initiatives it has already placed tremendous resources behind. It's an extension of where the company has been headed for years.

So don't judge the Kindle Fire as the "iPad Killer" yet, because in the short run, it will fail to live up to the hype. The key point is that it doesn't need to "kill" the iPad to be successful. By proving itself as the established leader in Android tablets, the company will get more than a good return on its investments even if the space is evenly split. Amazon will increase engagement across its services, and drive adoption of Prime -- a service which drives the holy grail of Internet companies -- reliable, low churn, recurring revenue.

iPad Killer? No. Great product that will rule the Android tablet world? Yes.

To stay updated on all news surrounding Amazon, make sure to add the company to our free My Watchlist feature. It'll provide complete follow-up news and analysis on the company's tablet offerings leading up to the Kindle Fire's Nov. 15 launch. To add Amazon to My Watchlist, click here -- it's free!

Eric Bleeker owns shares of NVIDIA. The Motley Fool owns shares of Wal-Mart Stores, Google, Texas Instruments, Research In Motion, and Apple. Motley Fool newsletter services have recommended buying shares of Amazon.com, Google, Wal-Mart Stores, NVIDIA, AT&T, and Apple. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended writing puts in NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (22) | Recommend This Article (42)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 28, 2011, at 12:46 PM, jdmeck wrote:

    There will be as many people turned off by the need to be heavily into Amazon storage as there are people turned off by the need to use the iPad through iTunes.

  • Report this Comment On September 28, 2011, at 12:50 PM, rtichy wrote:

    1) It will adequately protect the Kindle e-book market from Apple's iBook format/reader and from the Nook.

    2) The "cloud" storage and Amazon Prime integration will make Amazon a worthy competitor to Netflix and iTunes.

    3) Amazon's app market can become an Android iTunes, because Google's app market is fragmented, un-regulated and a potential haven for identity theft and phishing apps.

    I think it emphasizes media consumption, even more than the iPad, with its multiple tie-ins to Amazon.com; book, movies, music: isn't that Amazon in a nutshell? Action gaming will have to be on something else, most likely, but probably half the free-mium games out there are usable on this device, too.

    It's not a threat to Playstation, Wii and xBox...

  • Report this Comment On September 28, 2011, at 1:22 PM, DoctorLewis4 wrote:

    The point of the ipad is it's screen and ease of use. Do you really want to watch video on this tiny 7 inch deal? So what if it's cheaper.

  • Report this Comment On September 28, 2011, at 1:44 PM, TMFRhino wrote:

    Doctor,

    Targeting different markets. Its not going to out-sell the iPad any time soon... But its definitely going to clean up on the Samsung Galaxy Tabs of the world.

    -Eric

  • Report this Comment On September 28, 2011, at 1:48 PM, TotallyJaded wrote:

    "Wi-Fi only, meaning users won't have the option of getting 3G data service from telecom partners such as Verizon..."

    Less than a year ago, Verizon would have said it worked just fine with a MyFi. After all, that's how they were slinging the first-gen iPad.

  • Report this Comment On September 28, 2011, at 1:55 PM, dlchase24 wrote:

    I think Amazon realizes that hardware isn't what will rule the tablet market. It is a media consumption device that helps sell their content. It works the same way for Apple, the iPad is really intended to sell their content, and that's likely why other competitors have failed.

    While some may argue over screen size or lack of HDMI, they should also consider this is a first generation device. A 10inch option could be in the works. An HDMI option could be in the works, although there are streamers and such already out there for getting Amazon content in your living room.

    While everyone is happy to point out what new products don't have (even with Apple's products), I think you have to at least be intrigued with this as first step for Amazon.

  • Report this Comment On September 28, 2011, at 2:01 PM, pondee619 wrote:

    But will it deliver enough to justify a 100+PE and a PEG over 4 on AMZN? Kinda what this investor wants to know about Amazon's tablet.

  • Report this Comment On September 28, 2011, at 2:01 PM, LWILLS wrote:

    Agree with Eric - it probably will clean up on the Galaxy tablets. And it will probably bring in new tablet users who are simply not going to pay up for an iPad.

    My biggest problem is with the size. Younger generations will simply make do with their phone and older generations will find it too small to be very useful.

    What it could possibly do is bring in new tablet users who have stayed out of the iPad market due to price. Once they "get" the usefulness of a tablet, but become frustrated at the Fire's limitations, they may be more willing to pony up the dough to buy an iPad.

    My 65 yo aunt, an avowed anti-Apple person, recently purchased a Galaxy Tablet for her birthday. After using it a few days and not being able to do what she wanted on it (limited apps), she returned it and purchased an iPad2. And believe me, she is pretty stubborn. So for her to change her mind really caught my attention.

    Just my .02 cents!

    Lori

  • Report this Comment On September 28, 2011, at 3:00 PM, hbofbyu wrote:

    IMO would be competitors have large blindspots in their design process. Design from the customer up, not from management down, not from engineering down, not from source component cost optimization down. The screen size of this product is the killer. It is great size for an e-reader. For multimedia, no. It's an expensive Kindle. Not impressed.

  • Report this Comment On September 28, 2011, at 4:02 PM, Accreator wrote:

    "Great product that will rule the Android tablet world? Yes."

    Well, no. This is very far from ruling anything. Spec wise it is laughable compared to the Galaxy tab 7 updated. Only good thing is the price and interface, the rest is boredom.

    "But its definitely going to clean up on the Samsung Galaxy Tabs of the world."

    And why do Apple lovers (real fools) want to kill Samsung? Because you're scared, these koreans, damn they're good! What can you do about it? Well nothing, except dreaming that some 2nd tier tablet hurts them :-p

  • Report this Comment On September 28, 2011, at 4:38 PM, EGTalbot wrote:

    This is not the ipad killer, it's the Nook color killer and the RIM killer (not that RIM isn't also suffering from self-inflicted wounds).

    The key question is whether it will sell, not whether we can find legitimate things to complain about it. Given that Barnes and Noble took a less tech-savvy and much smaller customer base and sold 3 million units the first year with a similar tablet that was more expensive, I could easily see Amazon selling 15-20 million units in a year. Given that most of the profit will come from content, it's hard to predict exactly how much that increases earnings, but it's decent upside.

  • Report this Comment On September 28, 2011, at 6:51 PM, ScottmFool wrote:

    I'll be eagerly reading up on the results of those who install honeycomb on it.

  • Report this Comment On September 28, 2011, at 6:51 PM, sheldonross wrote:

    "It's an expensive Kindle. Not impressed."

    I find this comment entertaining. The Original Kindle retailed for $399 in late 2007.

    Kindle 2 $359 in 2009 ($299 in late 2009)

    Kindle 3 $189/$139(wifi-only) Aug 2010.

    So kindle's just got under $200 about a year ago. And that of course is for a simple e-reader.

    This is pretty much a full-fledged tablet that will play movies, games, browse the internet, etc etc etc. And it's priced just above what a plain old black and white ereader sold for last year.

    That is impressive. No one else markets a device of these capabilities at anywhere near this price point.

  • Report this Comment On September 28, 2011, at 6:54 PM, TMFTomGardner wrote:

    What about for the professional market? Hundreds of employees with $200 tablets -- useful?

  • Report this Comment On September 28, 2011, at 7:16 PM, sheldonross wrote:

    @ScottmFool

    According to arstechnica, the Kindle Fire does run on honeycomb. Granted Amazon has put their own GUI on top of it.

  • Report this Comment On September 28, 2011, at 7:21 PM, ScottmFool wrote:

    OK, their customization of Android better be off-the-charts awesome, because based on a comparison with the Nook Color, they're virtually identical except the Fire has a (slightly) smaller screen and no microSD slot.

    The Fire does beat the Nook on price by $50, but how long do you think it'll take B&N to lower the price?

    So, unless that Android customization is awesome, this thing isn't even better than a Nook.

    My initial impression is that this is media hype. I'll wait for the Nook to drop in price then buy that.

  • Report this Comment On September 28, 2011, at 7:48 PM, Lucilou wrote:

    I thought this blog was for investing ideas. Not for tech info. Please note apple pe is 17, and amazon pe is 100 plus. Enough said.

  • Report this Comment On September 28, 2011, at 11:25 PM, jargonific wrote:

    It will find a niche, people who travel on trains and want something ultra light... but it is only Wifi capable, some parts of the world don't have it yet. It has flash, but no camera or video. So it isn't really like the average smart phone which people are use to. It would be an "add on" for someone, but people who are use to these features on other devices won't be interested in a downgrade..

    For people who want to have an Amazon online experience, niche audience.

  • Report this Comment On September 29, 2011, at 8:07 AM, pondee619 wrote:

    Lucilou:

    "I thought this blog was for investing ideas. Not for tech info. Please note apple pe is 17, and amazon pe is 100 plus. Enough said."

    I thought this article was "What Investors Need to Know About Amazon's Tablet". All we get are the techs on the machine.

    Will it sell enough to justify a 100+ PE and a PEG of 4? I asked the question, you asked the question. No one, not even the author of this article proporting to tell "investors" what they need to know will answer. Perhaps no one cares.

    All we get is that the Fire should be the clear #2 to Apples's offering in a market where EVERYTHING ELSE is "falling flat". Does that justify a 100+ PE and a PEG of 4?

  • Report this Comment On September 29, 2011, at 10:56 AM, FutureMonkey wrote:

    What an investor needs to know is that Amazon does not need to make a single dime from Kindle Fire sales. What they need to do is get millions into hands of customers that will use it as a gateway to Amazon services. Bezos is a genius if this story plays out as planned to (1) plump Amazon Prime subscriptions, (2) drive traffic to the Amazon market place, (3) drive traffic to Amazon e-books, music and video.

    They don't need to dislodge iPad they just need to drive revenue in their core business.

    Going forward I see these two as the dominate choices for tablets followed by a pack of distant also rans.

    FM

  • Report this Comment On September 30, 2011, at 11:25 AM, RudyMXT wrote:

    As the plane reaches altitude and they give the OK to power up personal electronic devices, I reach for my new Kindle Fire so I can watch the latest movie.

    WAIT! I can't. The Fire can only stream video and other content from the cloud and even though I'm in the clouds, I don't have a high bandwidth WiFi connection. Hmm airlines stopped stocking magazines on domestic flights. Next time I'll bring my iPad.

  • Report this Comment On September 30, 2011, at 5:00 PM, busterbuddy wrote:

    There is a market for the kindle. But here's the thing. My daughter ask for a kindle last year. I bought her an IPAD. My daughter game us back the Apple Laptop. She now has an IPAD and a nice IMAC. She buys her college books from Amazon.

    As most college people do, today.

    The future is both. I like the IPAD and want one.

    I'm not interest in a kindle but others will be but not because of IPAD versus KIndle.

    Both is market for both. RIMM is the death from this one. If apple makes my IMAC work like the IPAD then that is the end of the world for others.

    But here is the best issue. Cost of Wifi and finding hot spots are the biggest issues. It just cost to much to have service per devices. Need to be able to buy bandwidth and use any device on it.

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