After Amazon’s Kindle Fires, Apple Faces a Tough Decision

Amazon.com (Nasdaq: AMZN  ) wants to take the tablet world by storm with its army of Kindle Fires. The e-tail giant unleashed a slew of new tablets earlier this month, with a bold proclamation that it was set on offering the "best tablet at any price." CEO Jeff Bezos has written a letter prominently displayed on Amazon’s home page echoing this sentiment: "…we hope people will agree these are the best tablets and e-readers anywhere, at any price."

One-upping Big G
For the most part, the new Kindle Fire HD is a very solid response to Google’s (Nasdaq: GOOG  ) new Nexus 7, matching the search giant’s new first-party tablet in just about every meaningful hardware specification. Both tablets feature a seven-inch IPS display with a resolution of 1280 x 800. Amazon did, however, one-up Google by including more storage at each price point.

Price point Amazon Google
$199 16 GB Kindle Fire HD 8 GB Nexus 7
$249 32 GB Kindle Fire HD 16 GB Nexus 7
Sources: Amazon, Google.

Of course, Amazon’s new arsenal doesn’t stop there, as its tablet lineup now ranges price points from $159 to $599, with just about everything in between occupied by a new tablet. The low end of the spectrum features the first-generation Kindle Fire with upgraded internals, while the high end is being held down by the 8.9-inch version with 4G LTE.

How low will Apple go?
These larger models have Apple’s (Nasdaq: AAPL  ) iPad set clearly in its sights, hoping the slight size difference isn’t enough to dissuade potential buyers. It’s a virtual certainty at this point that Apple is preparing to launch an iPad Mini with a 7.85-inch display in an aggressive down-market dance to fend off Amazon and Google. This new device is expected to be unveiled next month, after the iPhone 5 has its time to shine and bask in the media spotlight.

One of the biggest unknowns and most critical strategic questions at this point regarding the iPad Mini is how Apple will price it. Like most Apple products, it should carry a premium relative to rivals, so the $199 price point is out. In order to remain competitive, I think Apple will go with either $249 or $299, probably for a 16-GB model.

Look out below
It just depends on how aggressive Apple is willing to play the iPad Mini, since a $249 price point would be very compelling, and mighty tempting to any prospective $199 Kindle Fire HD or Nexus 7 buyers for just an extra $50. It’s worth pointing out that, on an earnings conference call way back in March 2009, then-COO Tim Cook made an important comment on Apple’s pricing strategy: "…one of the things that we will make sure is that we don’t leave a price umbrella for people."

A price umbrella is a situation where a market leader maintains premium prices and refuses to lower them, allowing an entry for competitors to sneak in from below ,and then subsequently invade up-market. He was speaking of iPhone pricing at the time, but you’ll note that the iPhone 3GS was released a few months later, which would begin Apple’s practice of moving down successively older generation models to occupy lower price points, eliminating the price umbrella.

This is exactly why Apple is assuredly releasing an iPad Mini. Its current entry-level price in the iPad lineup is the $399 iPad 2, while Amazon and Google are both currently enjoying success near the $199 price point. Here’s how each company’s pricing lineup compares, as well as where an iPad Mini would fit in.

Sources: Google, Amazon, Apple.

We’ll need to add yet another dimension to this equation once Microsoft (Nasdaq: MSFT  ) officially reveals its Surface pricing, although rumors are pointing to its Windows RT version coming in at $199 in October.

As far as Amazon’s hopes to boast the best tablet at numerous price points, which will consumers prefer at $249? A 16-GB Nexus 7, a 32-GB Kindle Fire HD, or a 16-GB iPad Mini? What about if Apple prices at $299? A 16-GB Kindle Fire HD 8.9”, or a 16-GB iPad Mini? These are important questions that Apple and Amazon are asking themselves right about now.

The only entity that will have the answer is the almighty market. Let the games begin next month.

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Fool contributor Evan Niuowns shares of 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 Microsoft. Motley Fool newsletter services have recommended buying shares of Amazon.com, Apple, Google, and Microsoft. Motley Fool newsletter services have recommended creating a synthetic covered call position in Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not 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.


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  • Report this Comment On September 15, 2012, at 7:23 PM, jimbotomy wrote:

    One important difference between Amazon and Apple is that, as far as I know, Amazon has absolutely no retail presence. If I'm curious about an iPad or the rumored iPad mini, I can drive down to one of several different Apple Stores and play with them. Being able to do this was a big reason for me buying my first iPad.

    I can't do that with Amazon, though. And that leaves them in a tough position. They have to sell to people who are convinced they want a tablet, but for some reason don't want to buy and iPad. Amazon's built up a bit of trust with Kindle owners but for them to break through and get iPad-scale sales with their Kindle Fires assumes a lot of trust on consumers. Given how poor the software and build quality of the original Fire was reported to be, I think that's a tall order.

    I'd be very hesitant to buy one of these things sight unseen.

  • Report this Comment On September 15, 2012, at 10:00 PM, megoogler wrote:

    This infomercial is brought to you by our sponsors Amazon.com!

  • Report this Comment On September 16, 2012, at 1:20 AM, FreeRange1 wrote:

    What a crock! There is no comparison to the iPad in any shape or price point! The kindle is an Amazon store front, by their own admission. You can gain access to all of Amazon's offerings on an iPad through Amazon's own free apps in the iTunes store, or online. But you get much much more with an iPad regardless of Jeff Bezo's trying to channel Steve Jobs.

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