Apparently unveiling updated tablets is the "in" thing to do this week.
On the heels of Microsoft unveiling an update to its own line of Surface tablets on Monday, online retail giant Amazon.com (NASDAQ: AMZN ) followed suit today by launching the third generation of its Kindle Fire tablets.
Judging from the stock market's somewhat muted reaction (down 0.47%), investors aren't exactly sure what to make of this new set of tablets or their broader implications for Amazon.
A serious upgrade
This new set of devices represents a significant advancement from last year's Kindle Fire lineup. Amazon introduced new branding for the highest-end Kindles with the suffix HDX.
These two new Kindle Fire HDX sport some serious hardware advancements, but will also come with a slightly higher price tag. The 7-inch version starts at $229, while the larger 8.9-inch model pricing begins at $379. Each device also comes in 4G LTE versions on AT&T and also added coverage from Verizon for the first time. The wireless edition of these devices adds $100 to the initial sticker price for each device. Taking up the low end, the Kindle Fire HD will now be priced at $139, which allows Amazon to hit multiple pricing points.
Amazon isn't using this moderate price increase on the HDX to pad its margins, though. (Does it look like Apple?) The likely culprit for the majority of the update is the display, which Amazon touts as "beyond HD." The chips powering these bad boys also got a major boost with Qualcomm's Snapdragon 800 chip as well.
Beyond the hardware improvements, Amazon also introduced a new Mayday feature that allows a user to access live technical support. According to Amazon, the feature is completely free and will enable Kindle Fire HDX owners to connect live with a member of Amazon's technical support staff any time day or night in less than 15 seconds.
And while the Kindle Fire HDX hopefully isn't so confusing that it consistently stumps its users, it's nice to know Amazon has your back.
But what's the point?
By pricing its tablet at or near its production costs, Amazon hasn't shifted its tablet strategy of using its Kindles to drive users back toward Amazon's other software and services.
This certainly makes sense for Amazon. In a note to clients, RBC Capital Markets equity research analyst Mark Mahaney estimated that Kindle owners purchase as high as four times the number of books versus the normal Amazon shopper. It also likely experiences similar network effect for other forms of media like music and moves as well. This paints the picture of the Kindle effectively acting as a funnel into other parts of Amazon's e-commerce empire.
Amazon CEO and founder Jeff Bezos has said repeatedly that he wants Amazon to make money when people use the device versus when they buy it. By some estimates, the Kindle ecosystem could drive as much as 10% of Amazon's overall revenue. There's something to be said for this strategy.
Summing it up
Amazon is now poised to move into a holiday season with a freshly updated lineup of tablets. The company is notoriously ambiguous about its Kindle sales, but it's still estimated to be a relatively niche player that relies mostly on seasonal sales during the holiday quarter to drive overall volumes. To that end, research firm IDC predicted that Amazon's share of the global tablet market fell to 3.7% of the global tablet market in the first quarter of this year.
Investors anticipate two more tablet launches before the holiday shopping season kicks into full gear. Apple's (NASDAQ: AAPL ) iPad refresh has been rumored for October 15. Apple is widely expected to make a number of upgrades or tweaks to its second key product as well. In a similar vein, Microsoft is also expected to debut a smaller version of its Surface tablet at some point.
Regardless, we're entering the most competitive time of year for tablets sales. Thankfully for Amazon, its tablet offering should be another competitive entry in this booming market.
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