The case against the Kindle as a low end tablet disruption(asymco.com)
asymco.com
The case against the Kindle as a low end tablet disruption
http://www.asymco.com/2011/09/30/the-case-against-the-kindle-as-a-low-end-tablet-disruption
22 comments
> "The iPhone is also a subsidized product and it seems very successful. How come it won? The answer is in details."
One of the other relevant details is that any subsidies that are provided are done so by the wireless carriers, not Apple. Apple gets paid in full for each iOS device sold, either by the carrier (iPhones), or by the customer direct (the other iOS devices). By being immediately profitable on each iOS device, Apple has no "subsidy variables" to factor into its profitability -v- product lifecycle calculations.
One of the other relevant details is that any subsidies that are provided are done so by the wireless carriers, not Apple. Apple gets paid in full for each iOS device sold, either by the carrier (iPhones), or by the customer direct (the other iOS devices). By being immediately profitable on each iOS device, Apple has no "subsidy variables" to factor into its profitability -v- product lifecycle calculations.
Most articles I've read on this subject state that the new tablet will be sold at cost - a few dollars, not cost - $50. Which of these estimates is most likely correct?
Estimate says Amazon will be making a $50 profit: http://www.eetimes.com/electronics-news/4228505/Kindle-Fire-...
Estimate from iSuppli (yes, the infamous iSuppli) claiming loss: http://www.isuppli.com/Teardowns/News/Pages/Amazon-Sells-Kin...
Make of that what you will.
Estimate from iSuppli (yes, the infamous iSuppli) claiming loss: http://www.isuppli.com/Teardowns/News/Pages/Amazon-Sells-Kin...
Make of that what you will.
Let's see how long that price is sustainable. There's no point to buy Kindle and not to buy any books, so subsidied Kindle will earn money to Amazon. But not so with Fire, you can (and there will literaly be millions and millions of cheapskates who will do exactly that) buy it and not buy anything from Amazaon after that. So I predict that Fire will be Amazons Bing.
a fascinating thing about amazon is that they move inventory so quickly that they collect money from customers before they have to pay their suppliers—they have a cash float† they can actually sell products for a loss and still make money—especially if there is growth. it's like a ponzi scheme that actually works.
that said, maybe it will be amazon's bing, but bing buys microsoft insurance that may be much less costly to them than the risk of a google owned future.
my take with the fire is that amazon wants people to move from physical goods to electronic goods—they know that not everyone who owns a fire will consume their goods, but they also know that the more accessible the means to consume those goods, the more business for their core business—the one that makes them money, even if just for 20 days.
† http://www.usablemarkets.com/2009/06/18/amazons-float/
that said, maybe it will be amazon's bing, but bing buys microsoft insurance that may be much less costly to them than the risk of a google owned future.
my take with the fire is that amazon wants people to move from physical goods to electronic goods—they know that not everyone who owns a fire will consume their goods, but they also know that the more accessible the means to consume those goods, the more business for their core business—the one that makes them money, even if just for 20 days.
† http://www.usablemarkets.com/2009/06/18/amazons-float/
Amazon certainly makes money on Kindle Fire when you buy books, or music, or rent movies, but also, when you impulse buy anything from Amazon rather than waiting till you get back home and rethink it, or leave the library or class or work and stop at Target on the way home.
Moreover, Google (through Motorola) will soon make an as-good-or-better tablet at the same price point as the Fire. The Fire is a direct threat to Google's tablet ambitions, and Google has much more cash with which to subsidize tablets. In addition, Google has a monetization strategy (ads + content) which is better than Amazon's (content). Heck, even search ads alone is probably better than Amazon's content model. Amazon's ad. monetization is weak because they don't have a search engine nor a real locality ad. platform.
However, one way in which Amazon can make a ton of money on the Kindle Fire is to use their Silk browser to replace ads in search results and web pages on Fire devices. They can do this because Silk is effectively a rewriting proxy. Customers may stick with Silk anyway because the pages will load more quickly. There will be backlash, but Amazon may decide to do this anyway. Obviously, they would only replace a small percentage of the ads so as not to be cut off. Alternatively, they can use Silk data to better target Fire ads. to users outside of the browser, or with interstitials.
They can do this because Silk is effectively a
rewriting proxy.
And it isn't only Google that Amazon should worry about in such a case -- if I'm a webmaster and the ads for which I'm getting paid for are going to get replaced by Amazon, I would be pretty pissed and I would probably block all Silk-related requests.
Customers may stick with Silk anyway because
the pages will load more quickly
Agreed, ad. replacement may be derivative-work liability for Amazon; I don't think the case-law is clear.
But they don't have to directly replace ads. in order to monetize ads well. Because they have all of a user's browsing history with Silk, they can target ads. as well, or possibly better than, Google. Perhaps they show ads. at the bottom of the screen, or in the screen saver, or while web-pages are loading, or with location-based pop ups for coupons for a store just down the street, whatever.
In this respect the Fire is a direct attack on Google, and Amazon probably has to take this step in order to be able to subsidize this tablet as much as Google will be able subsidize their tablets. For this reason I wouldn't be surprised if Google soon cuts Amazon off from Android by making more of the OS closed source, and breaking app. compatiblity. If this occurs, expect Amazon to make a bid for Palm.
But they don't have to directly replace ads. in order to monetize ads well. Because they have all of a user's browsing history with Silk, they can target ads. as well, or possibly better than, Google. Perhaps they show ads. at the bottom of the screen, or in the screen saver, or while web-pages are loading, or with location-based pop ups for coupons for a store just down the street, whatever.
In this respect the Fire is a direct attack on Google, and Amazon probably has to take this step in order to be able to subsidize this tablet as much as Google will be able subsidize their tablets. For this reason I wouldn't be surprised if Google soon cuts Amazon off from Android by making more of the OS closed source, and breaking app. compatiblity. If this occurs, expect Amazon to make a bid for Palm.
"I somehow really doubt that Silk will translate in a faster user experience. Of course, marketing does wonders."
As I understand it (that is what you call a disclaimer), Silk will operate in a fashion similar to Opera Mobile. Requests are routed to a proxy farm which transcodes and optimizes content for a known target browser. In Amazon's case, they have exceptional knowledge and control over that platform.
It's probably the one thing other than massive superior content that Apple might envy. :-)
As I understand it (that is what you call a disclaimer), Silk will operate in a fashion similar to Opera Mobile. Requests are routed to a proxy farm which transcodes and optimizes content for a known target browser. In Amazon's case, they have exceptional knowledge and control over that platform.
It's probably the one thing other than massive superior content that Apple might envy. :-)
For amazon, the tablet is a also way to get many people to subscribe to prime. prime users buy 3x-4x than normal amazon users. So they might have better subsidy model than google.
The future opportunities in controlling digital content and mostly e-commerce are huge.Wal-mart size huge.New prime customers really help amazon fight for those opportunities. Losing a bit of money on tablets is just small investment, nothing more.
The future opportunities in controlling digital content and mostly e-commerce are huge.Wal-mart size huge.New prime customers really help amazon fight for those opportunities. Losing a bit of money on tablets is just small investment, nothing more.
The margins on folks who do buy Amazon content are probably pretty good, helping make up for those that don't buy any content. For example, there is a strong incentive to subscribe to Prime once you have a Fire, which not only brings in some good money but also encourages you to start buying things on Amazon.
I'd choose an iPod Touch or an iPad 1 over a Kindle Fire any day.
I have an ipod touch and I ordered a kindle fire because:
1. I want the larger screen. The ipod's is too small for comfortable reading.
2. I want to be able to transfer books to the device without having to go through itunes. Isn't it mysterious that I can copy pictures from the ipod using a usb cable, but cannot copy anything to it?
3. I'm hoping Fire's browser will be able to see shared files on my LAN. Safari on the ipod mysteriously won't, although Safari on the Mac will. This limitation severely limits the usefulness of the ipod, as it cannot see my local shared books, pictures, or music.
I have an older Kindle, which I like very much, but it won't see shared files either. But at least they labeled it's browser as "experimental", so I had no expectations. And I can transfer books to it via usb from my desktop without needing to install anything on the desktop.
Don't get me wrong, I like the ipod a lot. But I want a fire, too [stamps feet].
1. I want the larger screen. The ipod's is too small for comfortable reading.
2. I want to be able to transfer books to the device without having to go through itunes. Isn't it mysterious that I can copy pictures from the ipod using a usb cable, but cannot copy anything to it?
3. I'm hoping Fire's browser will be able to see shared files on my LAN. Safari on the ipod mysteriously won't, although Safari on the Mac will. This limitation severely limits the usefulness of the ipod, as it cannot see my local shared books, pictures, or music.
I have an older Kindle, which I like very much, but it won't see shared files either. But at least they labeled it's browser as "experimental", so I had no expectations. And I can transfer books to it via usb from my desktop without needing to install anything on the desktop.
Don't get me wrong, I like the ipod a lot. But I want a fire, too [stamps feet].
The Kindle Fire really has nothing going for it except for the large screen and the price.
Hang on a second. What about Silk? Think about this for a moment: Who wins if web browsing is ridiculously fast?
Amazon is presenting this as a win for users. Perhaps, but not only so. It’s also a win for people who build complicated web applications. Such as... Drum roll... Amazon.com.
What the Kindle claims to have going for it is that I as a consumer can buy a low-end device but enjoy a high-end experience when I use a non-trivial web application such as online shopping.
Amazon is presenting this as a win for users. Perhaps, but not only so. It’s also a win for people who build complicated web applications. Such as... Drum roll... Amazon.com.
What the Kindle claims to have going for it is that I as a consumer can buy a low-end device but enjoy a high-end experience when I use a non-trivial web application such as online shopping.
The premise upon which this depends requires construing the Fire as Amazon's ground zero entry into the segment and dogmatic acceptance of the standard narrative in which the market segment for tablets or slates did not exist prior to the introduction of touchscreen devices in the form of Apple's iPad.
But neither is the case, just as smartphones were available for years before the introduction of the iPhone, likewise, the Fire is an extension of Amazon's well established product line - an extension which given the naming convention Amazon has employed (Kindle -> Fire), one may reasonably suspect has been on the drawing board for quite some time.
Another way to look at the potential for disruption which the Fire may hold is to consider it as an extension of the disruption Android caused in the smartphone market; i.e. making touchscreen smartphones ubiquitous commodity devices. Indeed, Amazon's agenda with the Fire (and Kindle) is more analogous to Google's with Android than to Apple's for the iPad.