Amazon has just announced the Kindle Fire, a tablet based on the Android operating system, available for $199. What Amazon is selling is not a device but a service.
The device price is below cost (see Amazon tablet costs $209.63 to make, IHS estimates) because the remaining revenues and profits should come from the tightly integrated Amazon services. Amazon is a content company, with the ability to serve videos, music, apps, books, magazines over the air thanks to their powerful cloud.
The Kindle Fire presentation by Bezos is below, starting at the 31-minute mark:
The other tablets are on sale for much higher prices. The iPad WiFi, the Motorola Xoom WiFi, the Samsung Galaxy Tab 10.1 WiFi, the HTC Flyer Tablet 7′ WiFi, Sony – Tablet S, they all sell starting at $499. Asus – Slider Tablet with 16GB Memory $479. Toshiba – Thrive Tablet with 8GB Hard Drive $379. The BlackBerry – PlayBook Tablet 7′ is at $299. Prices found at BestBuy website on Sept 30 2011.
With the Amazon tablet Fire we see, once again, how digital convergence is transforming the mobile business. A content company can disrupt incumbents with a different business model. By selling the integrated service they can offer the devices to a price that traditional hardware vendors cannot compete with. Competition is in this space is brutal, HP has recently discontinued the TouchPad tablet, and now rumors on BlackBerry that may have halted production of its PlayBook tablet computer and canceled additional tablet projects.
And the prices of Kindle have been constantly dropping, as you can see from the Business Insider chart of the day When Will Kindles Be Free?
Another good article on Amazon margins and Amazon business model: Amazon’s $199 Fire sparks supply, margin questions
Some good blog posts on this topic:
- Om Malik at GigaOm Tablets wars: Apple is from Venus, Amazon is from Mars
- Michael Mace at MobileOpportunity Amazon vs. Apple? No, it’s Amazon and Apple vs. Everyone Else
- John Gruber at DaringFireball Amazon’s New Kindles
Apple is another example of how digital converge is disrupting the mobile world. Apple is a hardware company, (came from the PC business) that sells the experience by complementing the device with content. In the case of Apple, the money are made on the hardware, the iTune store breaks even but provides a great complement to the device. A complement that makes the overall experience sticky and more compelling.
Another company that could compete using the asymmetrical business model is Google. And probably this is what will happen once the deal with Motorola Mobility goes through. In this case, search and advertisements, content such as books, video and music and other cloud services such as docs and content storage and sync are already part of the Google portfolio. The integrated experience could make possible to offer mobile devices for a very low price or even for free.
The question arise for the incumbents that base their business on the pure device offering. Can they survive? They certainly need to reinvent themselves and establish partnerships with content providers and or find a different path to differentiate and innovate.