Fact: Amazon Is No Apple Killer

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Amazon.com's (Nasdaq: AMZN  ) looking for a fight. Last week's move to introduce a Santa bag full of new Kindle products aiming across all price points and spec sheets is going to make the leading online retailer a hit this holiday shopping season.

There's no beating Amazon's flagship Kindle on price. It's now as cheap as $69. What's more, the company flat-out owns the e-books market. The real question now is whether it can eat into Apple's (Nasdaq: AAPL  ) iPad stronghold with the refreshingly wider line of Kindle Fire tablets.

Plenty of analysts think Amazon has a legitimate shot. "If Apple wasn't scared of Amazon yet, it had better be now," fellow Fool Evan Niu wrote last week.

I don't necessarily agree.

Ad it up
Amazon didn't do itself any favors by quietly revealing that one of the reasons it was able to achieve ridiculously low pricing is that the Kindle Fire HD tablets will feature ads on the lockscreens.

The marketing won't be intrusive. There won't be pop-ups or banner ads during sessions. We're talking simply about an ad that will appear when the system is about to be put into use. Amazon introduced this feature last year on its Kindle readers, giving buyers the opportunity to shave $25 off the price by agreeing to put up with the ads pitching discounted offers.

This seemed like a winning move at the time. The group-buying website frenzy was in full swing. Folks were happily asking Groupon (Nasdaq: GRPN  ) and LivingSocial to flood their inboxes with deals for discounted prepaid vouchers. Amazon -- with its own Woot.com and a minority stake in LivingSocial -- would never run dry of stuff it could pitch.

Well, the allure of Groupon-like offers has been tarnished lately. If you back out Groupon Goods revenue for the niche leader's latest quarter, you're left with a surprising 7% sequential top-line decline.

Perhaps more surprisingly -- at first -- was Amazon's decision to not let shoppers opt out of ads. Even if many consumers will appreciate the ads or the subsidized prices, there will always be people out there who object to seeing their tablets treated like bus-stop benches.

Nipping the negativity in the bud
One thing Amazon did right was address the situation long before the product hit the market to a potentially problematic firestorm. Retreating over the weekend, Amazon is now giving Kindle Fire HD buyers the option to pay a one-time fee of $15 to strip the tablets of ads when the screens are locked.

Obviously, most people will decide against paying up. Some will enjoy the ads. Others won't know about the opt-out process. There will probably be even buyers who won't pay the fee on principle.

Either way, Amazon is arming the competition with ammo if they ever want to position their tablets as the ones that don't hit you up with ads. Let's just hope Amazon doesn't ever dream of sticking owners with the tab for the bandwidth to serve the ads in the first place.

Flying too close to the sun
Amazon hit new highs last week after introducing its new toys. Netflix (Nasdaq: NFLX  ) also soared to new highs last summer after announcing a new pricing scheme that analysts and investors were originally receptive to. The pros then began to assess the situation from the perspective of irate consumers -- and now folks may once again become incensed about the Kindle Fire HD ads and the tollbooth operator that can make it all go away.

Netflix's reputation ultimately took a hit with the Qwikster fiasco, as the company was going to separate into two distinct websites. Netflix.com would handle streaming, and Qwikster would handle optical discs by mail.

Netflix ultimately reversed its decision before subscribers were ever inconvenienced -- just as Amazon is doing now by catching itself with an opt-out option for the ads -- but may it be too late? It was for Netflix.

Amazon needs to be careful here. A move that may start as a novel way to take a swing at Apple by taking hits on the hardware -- something Apple would never do -- may end up with the mother of all strikes against the leading online retailer's reputation. And while understanding its mobile strategy is key for Amazon investors, there's also much more to this mega e-tailer you'll want to understand, too. If you want to stay on top of the world's leading online retailer, a new premium report explores the company's upside and downside. The Amazon research report also includes a year's worth of updates, so check it out now.

The Motley Fool owns shares of Netflix, Apple, and Amazon.com. Motley Fool newsletter services have recommended buying shares of Apple, Amazon.com, and Netflix, creating a bull call spread position in Apple, and creating a bear put ladder position in Netflix. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz owns shares of Netflix and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 10, 2012, at 8:26 PM, SuntanIronMan wrote:

    Was it really that surprising that Amazon gave people the option to remove the Special Offers? They've been giving people the option to remove Special Offer ads since last year.

  • Report this Comment On September 11, 2012, at 11:55 AM, dlchase24 wrote:

    "there will always be people out there who object to seeing their tablets treated like bus-stop benches"

    Riiiight, because the websites you visit on that tablet don't get revenue from advertising...

    I understand saying you have to consider the customer in making decisions, but the idea that this will be a Qwikster level backlash seems ridiculous. There were rumors of Amazon releasing an ad subsidized tablet, so the only issue here is Amazon went back and forth on whether you could opt out or not.

    Can I see Apple throwing up a screen saying, no Ads at their next iPad presentation? Sure. But are you going to pay a couple hundred bucks for no Ads? Amazon only charges $15 for no Ads.

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