Amazon.com (NASDAQ:AMZN) may be rethinking some of its hardware strategy after the failure of its Fire Phone, but the company has not exited the device business.
The online retailer is planning a six-inch version of its Fire Tablet, which will sell for $50 in time for the 2015 holiday season, according to The Wall Street Journal. At $50, the new device would be around half the price of the company's cheapest six-inch model currently being sold, the Fire HD 6. That $99 model also has "special offers," which is Amazon-speak for "It has ads on it."
Perhaps more important than its pricing in relation to other Kindle Fire tablets, the $50 model will cost less than the $249 or so that you might find for older-model Apple (NASDAQ:AAPL) iPad Minis. It's even cheaper than the $99 HP Stream Windows 8.1 tablet, which sets the price standard for affordable Windows tablets.
It's very clear that Amazon is returning to the original strategy behind the Kindle tablets, which is to offer quality devices priced well below the competition.
How is Amazon doing with tablets?
When it first launched the Kindle Fire line, Amazon did a good job of mixing value and performance. The original models were not iPad equals -- they had inferior screens and a functional but dull design -- but they were good enough, especially when you consider the price difference.
That was enough to give Amazon a toehold in the tablet market, but the Fire has not supplanted the iPad. In the second half of 2015, the online retailer was expected to have 3.4% if the tablet market, according to data from TrendForce reported by ZDNet. That places it well below Apple at 27.4%, and Samsung at 18.6% of the market.
Amazon does not rank in the top 5 on IDC's Tablet Market tracker for the second quarter of 2015, meaning the research company believes it has less than the 3.6% market share held by fifth-place LG Electronics.
It's a disappointing showing for a company with hundreds of millions of customers with credit card information on file.
A lower price could mean a resurgence
Amazon first launched the Kindle Fire tablet line in November 2011, and while it was not the disruptive force some expected it to be, it was a solid hit. In the first quarter of 2012, the company had 3.1% market share, which grew to 3.7% a year later, according to data from IDC.
That was a solid start, but the online retailer never built upon that audience and failed to win much audience for higher-end models designed to compete more directly with Apple and top-tier Android tablets.
Part of the reason for this is that while the $99 price point was initially attractive, it was quickly rivaled by Android tablets and, later, some very high-functioning devices running Windows. Going cheaper may be the key for Amazon -- which has sold Fire Tablets with special offers for as low as $79.99.
A $50 price tag could be a sort of magical line where families crack and buy Kindle Fires for children as relatively inexpensive "big" holiday gifts. This is a price point previously reserved for no-name, not-so-great Android tablets. If Amazon delivers a reasonable facsimile of its more expensive models, it's easy to see this becoming a hot gift item.
Can Amazon deliver?
To reach the $50 price point, Amazon will have to make some sacrifices. Those will include having a mono rather than a stereo speaker, the Journal reported.
The question is -- and the success of the low-priced Kindle Fire hinges on this -- whether the company can deliver a reasonable product for that cost.
"Will people tolerate a potentially inferior experience just because a tablet is $50?" Frank Gillett, a Forrester Research analyst asked in the paper. "Amazon has to be very careful about what they're giving up to get to that low price point."
Still, Amazon has a history of creating decent devices at cheap prices. It's not going to equal the iPad for $50, but it doesn't have to. The company simply has to become better than the other tablets at that price point, and close enough to the ones that cost $100.
That's an achievable task that could make the new $50 Kindle Fire the hit of the holiday season. It's essentially a big-ticket gift at a stocking-stuffer price. That's a smart strategy that could bring millions into the Amazon tablet fold.
Daniel Kline owns shares of Apple. He owns multiple Kindle Fires, an HP Stream, and various other tablets. The Motley Fool owns and recommends 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.