While Apple (AAPL 0.49%) managed to offer a very small Black Friday discount on the iPad Air, Amazon (AMZN +1.07%) 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.
