Amazon launched its Kindle Fire on November 14th, and reviews seem to be split evenly into two camps. One group says Amazon’s debut tablet falls short of Apple’s iPad in almost every way, so much so that it may end up driving more business to Apple as customers look for a more fluid experience. The second set of reviewers sees the tablet as providing a solid user experience at an extremely attractive price point, thus opening the tablet market up to a whole new range of buyers. We fell into the second group when we reviewed the Amazon Kindle Fire last month. A number of analysts see huge potential in the Kindle Fire as well, and fourth-quarter shipments could reach as high as 5 million units. Morgan Stanley analyst Scott Devitt is among the analysts who sees huge potential in the Kindle Fire, and he believes this new portal into Amazon’s vast catalog of content could be a huge boost for the company’s bottom line. Read on for more.
“[The Kindle] Fire is a strategically misunderstood asset that will drive incremental sales and gross profit dollar conversion,” Devitt wrote in a report earlier this week. “We view Kindle Fire as a similar scenario to the original Kindle eReader launch in November 2007. Many ‘tech-spec jocks’ and hardware reviews have applied a one-dimensional evaluation of the Kindle Fire. However, we argue that Amazon.com has created an entire content ecosystem and operating system platform that supports the Kindle Fire, mak- ing it a better value proposition than any other Android-based tablet on the market. A compelling price point more than makes up for the relatively lighter tech specs.”
That content ecosystem paired with
“We view the negative gross profit contribution as part of a strategy to drive user adoption and content availability,” Devitt wrote. “Scale should benefit all parties involved. We believe that to control the monetization points of its device, Amazon.com has to facilitate the flow of content. In order to do this, Amazon priced its device at $199 to drive consumer adoption. With a large installed base, app developers would have a real incentive to produce content that Kindle Fire owners will purchase. Network effects between Kindle Fire owners and merchants looking to monetize them will both benefit from Amazon.com’s dedication to the ecosystem, and of course Amazon.com will extract its share of the economics.”
Amazon’s Kindle Fire quickly became the top-selling product on Amazon.com following pre-order availability, and it remains the No.1 product on Amazon’s site nearly 10 weeks later.
