Should Apple Be Worried About the Kindle Fire?

Many have tried. Many have failed.

Apple's (Nasdaq: AAPL  ) iPad may have finally met a rival that can compete in a meaningful way with the dominant tablet. Amazon.com's (Nasdaq: AMZN  ) Kindle Fire has assaulted the tablet market in a way that most other Android systems hadn't tried: coming in from below. The $199 price tag is awfully appetizing, particularly in the midst of the holiday shopping season.

Morgan Keegan is out with a research note saying that it believes the Kindle Fire was able to coax tablet buyers who would have otherwise opted for a shiny iPad 2 into picking up the 7-inch Android tablet. Analyst Travis McCourt believes that between 1 million and 2 million iPad unit sales instead went to Kindle Fires over the holidays.

At a minimum, that would mean missing out on $500 million in sales, with McCourt's low-end estimate and the $500 entry-level price point. At 2 million units, that would be at least $1 billion in lost revenue, with the same $500 price tag. Apple's iPad average selling price tends to be much higher though, $628 last year, so the figure could easily approach $1.25 billion.

Amazon has already said it has moved "millions" of Kindles, with the Kindle Fire being the most popular member of the family. The e-tailer continues to be vague with juicy details like actual unit sales figures, but other would-be tablet competitors like Motorola Mobility (NYSE: MMI  ) and Research In Motion (Nasdaq: RIMM  ) can't even break 1 million, much less multiple millions.

The distinct possibility that the assault from below is working adds some credibility to the notion of an iPad price cut. A separate report from dubious Digitimes even suggests that Cupertino may be considering moving iPad 2 pricing all the way down to $299 once two new iPad models hit. Digitimes is notoriously hit or miss, so set your expectations accordingly. A cheaper iPad 2 is more likely than the rumored 7-inch this year, but I think $399 is much more characteristic.

Moving to $299 would be a serious threat to the lower-end rivals, since the only tablet competitors that have even glimpsed success have thanked low price points for their fortunes. But then again, it's not like Apple to give up profits for the sake of growing market share; it's perfectly happy to boast the most profit share.

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Fool contributor Evan Niu owns shares of Amazon.com and Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Apple, Amazon.com, and Google. Motley Fool newsletter services have recommended buying shares of Google, Amazon.com, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. 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.


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  • Report this Comment On January 03, 2012, at 3:35 PM, jdmeck wrote:

    At a $10.00 loss per fire, Amazon may not be able to hold that price forever.

  • Report this Comment On January 03, 2012, at 3:43 PM, makelvin wrote:

    @InfoThatHelp, "...the Amazon ECC cloud which pops up the Kindle screen with ten times the speed of other mobile devices..."

    That is a very nice theory indeed. That was also the promise Amazon made when they first announced the Kindle Fire with the Silk browser. But when the Kindle Fire was actually on sales and people get to try to use it for themselves, the reality hits and the Silk browser is much slower than most web browser for most tablets, iPad included.

    There is another problem with using the Silk browser on the Kindle Fire as well, that is your personal privacy. Since every single click and every keystroke typed while you are using your Silk browser, Amazon will have all of that information as well as every single website you have ever visited. They will know every second of your web surfing experience while you are using their device.

    So Kindle Fire's Silk browser is not providing any performance advantage over other tablets, at the same time, you are complete giving up your entire web privacy to Amazon. The device has a much smaller screen with a shorter battery life with no camera and no microphone. I don't think I have ever read from any respectable reviews where the reviewer is actually praising Kindle Fire's performance and/or feature over the iPad. Even in the somewhat favorable reviews, the reviewer typically find Kindle Fire's performance and feature to be relatively good considering its "price of only $199".

    As for the customer's satisfaction of Kindle Fire, all you have to do is go to Amazon's own website and read the customer's review and find the ratio of very satisfied with the very dissatisfied customers.

  • Report this Comment On January 03, 2012, at 6:05 PM, ygtbfkm wrote:

    Page rendering speed is irrelevant. An iPad will render pretty much any page out there in a second or less, so fast you won't even notice it.

    The delays in loading a page are from three sources:

    a) your bandwidth to the Internet - if you have a slow connection, it takes more time to load all the data in order to render it.

    b) the server's bandwidth to the Internet - even if you have a high speed connection, if the server has a slow connection, or too many people loading at the same time, it doesn't matter how fast your connection is.

    c) the server's processing speed - if they have to do database lookups, requests from remote servers to get data, etc, it can delay generation of the data before it's even sent on to you.

    A super-computer loading pages, rendering them and sending a screen image to you is only going to improve on (a). For Amazon's own servers, it will also effectively bypass (b) (since they can have their own internal network running at very high speeds).

    In most cases when I go to a web site, the limiting factors are (b) and (c), and it doesn't matter how much bandwidth or processing power I have on my end, it isn't going to load any faster.

    As for the Kindle Fire - it isn't a direct competitor to the iPad. People who want an iPad, and are willing and able to pay for an iPad, aren't going to buy a Kindle instead. Apple simply isn't in the market for a low-cost limited capability tablet.

    If Apple does come out with a 7" $200-300 tablet, they'll be stealing sales from Kindle, not the other way around.

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