Amazon's (NASDAQ:AMZN) tablet business is in trouble.
Although much has been written about the decline of Apple's (NASDAQ:AAPL) iPad, Amazon's Fire tablets appear to be doing much worse. According to IDC's most recent data, sales of Amazon's tablets declined a whopping 69.9% last quarter on an annual basis.
Amazon argues that these figures are deceiving, asserting that its hardware is performing better than IDC's data would suggest. To some extent, that's true, but the massive decline is still remarkable. What's going on with Amazon's tablet business?
Amazon was still the world's fifth-largest tablet vendor in the fourth quarter, according to IDC, shipping 1.7 million tablets. That's down significantly from the same period last year, when Amazon shipped 5.8 million tablets. To make matters worse, the next largest tablet vendor, Asus, shipped almost twice as many (3 million).
Trying to define the tablet
Amazon, however, almost immediately disputed IDC's findings, noting that its figures didn't take into account its new 6-inch Kindle Fire HD. The $99 model was only introduced last fall, and according to Amazon, has already proven to be one of its most popular Kindle Fire models.
IDC, however, doesn't consider it a tablet, likening it more to a smartphone or MP3 player depending on whether or not it has voice-calling capabilities. That seems reasonable -- at 5.5-inches, Apple's iPhone 6 Plus is closer to Amazon's Fire HD 6 than the Fire HD 6 is to Apple's full-size iPad Air.
A means to an end
But to Amazon, it doesn't really matter -- its lineup of Fire devices merely serves as a means to an end: popularizing its digital content: books, music, movies, and games. Regardless of the screen size, Kindle Fire owners are more likely to purchase goods from Amazon. Consumer Intelligence Research Partners found that, on average, owners of Kindle products spend about 55% more with Amazon than nonowners.
But even including sales of the Fire HD 6, Amazon's tablets may still be in trouble. IDC estimates that Amazon shipped 1.2 million of them in the fourth quarter. Adding those to Amazon's other tablets yields shipments of only 2.9 million -- still a staggering 50% decline, and still in fifth place.
Amazon doesn't need its tablets to be successful, but without them it's in danger of losing its media sales to competitors such as Apple's iTunes. Last quarter, although Amazon's North American net sales rose more than 22% on an annual basis, its media sales were almost unchanged. For all of 2014, media sales grew just 7%, strongly lagging North American sales, which grew more than 24%.
Amazon's early success with its Fire tablets appears to have been predicated almost entirely on the fact that it was first to market with a cheap device -- when it unveiled the original Kindle Fire in 2011, there was no iPad Mini, and the few Android tablets that were out there were barely competitive. The competition has clearly caught up, and though Amazon has made vast improvements to its own devices, it obviously hasn't had the desired effect.
It will be interesting to see what changes Amazon has planned for this year's models. If they're not significant, Amazon could find itself fighting to stay relevant in a market that's clearly passing it by.
Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Apple. The Motley Fool owns shares of Amazon.com and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.