Amazon's Assault on Apple's iPad

While Apple (NASDAQ: AAPL  ) managed to offer a very small Black Friday discount on the iPad Air, Amazon (NASDAQ: AMZN  ) came in aggressively on Cyber Monday with big discounts on its tablets and an ad making fun of the iPad Air. Will the attack work for Amazon?

It's tough at the top
Being the world's most valuable publicly traded company has its fair share of challenges. In fiscal 2013, Apple raked in a whopping $37 billion in net income. You can bet numerous companies are doing everything they can to get a slice of this pie. Even a small sliver of that could move mountains for tech behemoths like Amazon, Microsoft, and Google. Apple's gross profit margins of 35%-plus are the envy of the industry, and these companies are fighting to get in on the cash. As Amazon CEO Jeff Bezos has said, "Your margin is my opportunity."

Strategic attacks to nab Apple's market share come in many forms. Some of these attacks are more overt than others. In fact, some -- like this this ad from Amazon -- are blatantly obvious.

It's a smart move by Amazon. No lies. Just truth. The facts speak for themselves. Not only is the tablet lighter, but its display easily trumps the iPad Air. After comparing the new Kindle Fire HDX to the Apple iPad Air display, DisplayMate concluded that the new Kindle display "has now jumped into the impressive category as the best performing Tablet display we have ever tested."

Of course, Amazon isn't the only company with an ad to poke fun at the iPad Air. In November, ads by Microsoft showed some of the benefits of a Surface 2 over Apple's new iPad Air. One ad highlighted Microsoft's hands-free technology, something the iPad Air lacks entirely. Another ad pointed out Apple's failure to support multiple accounts on iOS.

Massive price cuts
Beyond ads, a common strategy for competitors is to undercut Apple in pricing. Amazon, in particular, does this exceptionally well. Unlike Apple, the company doesn't have to please investors with massive gross profit margins. With gross profit margins at 26.5% in the trailing 12 months (considerably less than Apple's) and net margin of basically zero, Amazon investors are primarily focused on the company's ability to grow revenue and steal market share. Even more, Amazon takes a different approach to selling hardware. While Apple attempts to take profit up front, Amazon prefers to sell hardware at or near cost and profit from sales of content after the hardware is sold.

Thanks to Amazon's different approach to selling hardware, the company was able to offer consumers massive price cuts on Cyber Monday, dropping 7-inch 16 GB Kindle Fire and Kindle Fire HDX models by $50 each. That brought the Kindle Fire HDX pricing down from $229 to $179 and Kindle Fire pricing down from $169 to $119. Meanwhile, Apple only offered a small discount on Black Friday via gift cards -- a $75 Apple Store gift card to anyone who purchased an iPad Air, which starts at $499.

Will the price cuts work?
The two discounted tablets have taken the top two spots on Amazon's best-sellers list in electronics. Before these two Kindles took the top two spots, Google's Chromecast had held the first spot for some time -- even after the new Kindle models went on sale. There's no question about it, the pricing seems to be helping Amazon keep sales of the two models robust. But it's clear Amazon may not be making much (or any) money on these Kindles up front. So the company will need to continue to drive higher-margin content sales. That said, Amazon is certainly in a better position to do this with more Kindles in the hands of customers.

Source: Screenshot taken from Amazon's website.

For Amazon, undercutting Apple on price and poking fun at the company in its ads may be an effective strategy. As the biggest technology company in the world, Apple will continue to be targeted by competitors.

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  • Report this Comment On December 04, 2013, at 1:26 AM, Uruzone wrote:

    You, like the Amazon commercial, forgot to mention that the Kindle HDX 8.9 is the better part of an inch smaller than the 9.7" iPad Air. So the claim about the Kindle being lighter is, to be blunt, stupid.

    The screen quality IS beautiful, though. I just wish commercials (and those who report on them) would be fair in pointing out that the comparisons to iPad are not always entirely truthful.

  • Report this Comment On December 04, 2013, at 1:35 AM, bobyk3 wrote:

    Conclusion: Cheap plastic is lighter than aluminium.

  • Report this Comment On December 04, 2013, at 2:13 AM, johnestromjr wrote:

    Bezos is a sleaze bag. It was ScamAzon that went running to the DoJ because they were in danger of losing their monopoly in e-Books. For reasons not totally clear [yet] the DoJ went after Apple and brought a bogus case against Apple for price fixing. No mention of Amazon's price fixing and selling for less than cost to drive away any and all competition in the e-Books. Conveniently, Judge Denise Cote [Clinton appointee] did her part in not only ruling Apple guilty but saddling Apple with a "monitor" who is now gouging Apple to the tune of $1100 PER HOUR + 15% overhead. And since Micheal Bromwich is clueless about his job he's hired his buddy who does have experience. That sleaze bag lawyer is charging out HIS time at $1050 PER HOUR. And Judge Denise Cote reserved the right to have ex-party conferences with Bromwich at which meetings no record would be kept. Add to that Bromwich's demand that he meet with Apple executives that had no part in any of the events relative to the DoJ acton. Talk about corruption - from top to bottom.

    So back to Jeff Bezos who continues to have his e-Books monopoly selling e-Books at less than he is paying the publishers in order to keep out ANY competition. That is illegal and Judge Denise Cote can't say she doesn't know since it was she that effectively handed Bezos that monopoly. I sure would love to see an investigation of Bromwich, Bezos and Cote.

  • Report this Comment On December 04, 2013, at 5:35 AM, makelvin wrote:

    Uruzone, "... forgot to mention that the Kindle HDX 8.9 is the better part of an inch smaller than the 9.7" iPad Air..."

    Actually, the Kindle HDX 8.9 is a lot smaller than even the almost an inch less in display diagonal would have indicated. This due to the fact that the Kindle HDX 8.9" uses the 16:9 ratio and the iPad Air 9.7" uses the 4:3 ratio. As a result, the iPad Air actually has a screen area that is over 30% larger than the Kindle HDX 8.9.

    It is actually more appropriate to compare the Kindle HDX 8.9 to the iPad Mini's 7.9". It turns out that Kindle's display area is only slightly over 10% larger than the iPad Mini. And when you compare Kindle HDX 8.9 to the iPad Mini, the iPad Mini is actually quite a bit lighter than the Kindle HDX 8.9. Even the price is very comparable to one another. The Kindle HDX 8.9 with ad cost $379 and the iPad Mini cost $399; but if someone is to get a Kindle HDX 8.9 without ads, it is in fact the exact same price as the iPad Mini at $399.

    What is really ironic to the whole Kindle HDX comparison with the iPad is that fact that the iPad's 4:3 ratio is more suitable for reading and the Kindle HDX 16:9 ratio is more suitable for watching video. Most typical book layout form factor is much closer to the 4:3 ratio and since pdf files uses a fixed layout, it is actually awkward to view on the Kindle HDX. For a product that is known for eReading, it turns out that the better reading tablet is actually Apple's. :)

  • Report this Comment On December 04, 2013, at 7:19 AM, fauxscot wrote:

    This will sell some Amazon tablets, of course. Mostly to uninformed folks, but hey, sales.

    It's the season for this kind of stuff.

    Once the season is over, however......

    I am not sure that if Amazon is all about getting people to buy stuff from their platform and they forego profit from tablet sales to further that goal that they can be please at all with the recent numbers about who buys what with what. Apple trounces online purchases. Kindle stuff may be good for reading, but when it comes to buying, people aren't. Hence, the mocking ads. You don't mock the weaker; you mock the stronger. QED, Amazon. We see what you are doing there.

  • Report this Comment On December 04, 2013, at 7:41 AM, HiWho wrote:

    i had the Nexus 7, cheap plastic and it shuttered and became unresponsive.

    amazon kindle should be attacking Nexus 7, that is their real competition.

    Nexus screen broke while I was switching drivers with my son, and after we fastened seat belts, i lifted the thing to look at the map and it had cracks all over the place. I have no idea what happened, it certainly was not dropped.

    so cheap plastic will cost you sooner than you think. The guys in mall kiosk said they do not repair nexuses because screen sometimes. cracks while trying to replace the cracked one.

    my 8 year old has had an ipadmini for over 10 months, and it has no scratch on it. Son and I also have full iPads, no scratches. yesterday sold full ipad 3 for $200, plus $75 from Target Black Friday, bought iPad Air.

    happy with it, but it has this plasticky hollow sound when you type. annoying to me. but it certainly is easier on pinky and thumb, when I hold it up to type or read in bed, vs older ipad 3.

    i have the kindle app on ipad so i can have books and shop amazon when i want, but with kindle you cannot shop iOS apps.

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