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Here’s Why Amazon’s New Kindle Oasis Will Be a Dud

By Jamal Carnette, CFA - Apr 14, 2016 at 1:07PM

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Charging nearly $300 for an eReader will most likely dampen demand.

Kindle's new Oasis eReader. Source: Amazon.

This may be heresy to the technology-focused community, but sometimes new is not necessarily better. This seems to be the case with Amazon's (AMZN -0.03%) new Kindle Oasis eReader.

The Kindle Oasis does improve upon Amazon's Kindle line of eReaders, but will prospective shoppers flock to Amazon's high-end device? Anything is possible, but it's highly likely the new Kindle Oasis will be a dud.

Amazon does lower-end well...
Amazon's initial device success was spurred by the first-generation Kindle Fire tablet. At that time, Amazon's device presented a strong value proposition. In contrast to Apple's (AAPL 4.01%) high-end iPad line, the Kindle Fire was the first low-end, capable competitor.

Both benefited from first-mover advantage effects, with Amazon's pre-existing film, book, and television content mitigating Apple's native app advantage. Simply put, Amazon's Kindle Fire was marketed as a valuable, cost-conscious device. Unfortunately, Amazon has recently strayed from its goal of making cheaper devices to profit from increased sales through the company's retail-focused ecosystem.

The new product is more akin to the company's Fire Phone
The problem is that the new Kindle Oasis is the exact opposite. The company appears to now want to profit directly on device sales, like Apple. The limited-function eReader is priced at $290, nearly $100 more than the former high-end Kindle Voyage. Consumers do receive a charging cover, more battery life, and better built-in lighting, but it seems unlikely to force even hardcore readers to upgrade, or chose the high-end model.

Amazon had high hopes for its Fire Phone, but the unit failed to acquire significant market share. Source: Amazon

Instead, it's likely that Amazon's new device will flop like the company's Fire Phone. After debuting the device to much fanfare, Amazon found the high-priced device unable to command meaningful market share. After releasing the device in June 2014 for $199 with a two-year AT&T contract, Amazon quickly cut the price to $0.99. Later that year, Amazon took a $170 million Fire Phone inventory writedown, and soon thereafter, exited the smartphone business.

I doubt Amazon will have a huge inventory writedown with the Kindle Oasis, but the device will not be a huge success like the initial Fire tablet.

More-capable substitutes are cheaper
eReader sales have cratered in the last three years. Market research firm GfK Global estimates worldwide eReader sales dropped nearly 50% in the last three years, from 40 million in 2012 to 20.2 million last year. The presence of low-cost, full-function tablets has hurt eReader sales. Bringing a premium-priced product into the market when more-capable substitutes are available at lower price points is questionable. For example, Apple's lowest-cost iPad mini2 is currently priced at $269, $20 less than Kindle's Voyage.

Currently, there are three major ecosystem providers in technology, with each choosing to monetize its user base in a different manner. Unlike Apple and Alphabet, which rely on high-margin device sales and search revenue, respectively, Amazon primarily relies on device sales to spur growth in its core retailing business. It's doubtful that the new Kindle Voyage will help Amazon on that front, but it's also unlikely to detract from its core retail operations, either.

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