This Tablet Maker Blazes a New Trail
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Amazon (NASDAQ: AMZN) is once again reshaping the tech world - now tablets are the focus. According to CEO Jeff Bezos:
We aren’t building the best tablet at a certain price; we have just built the best tablet at any price.
Mr. Bezos is referring, of course, to the company’s brand new array of tablet computers. Mr. Bezos just released the news September 6 that the new Kindle Fire tablets would come in multiple shapes and sizes with a vast assortment of different features and prices.
Moreover, Bezos is not even hoping to profit directly from the sale of tablets – he hinted that the tablets would break even or perhaps act as a loss leader. The company hopes to subsidize its low prices with advertising by cross-selling its other products, such as apps or Amazon Prime. He hopes to profit when users actually use the devices, as opposed to when they first buy them.
Models and Prices
Amazon’s lowest-priced tablet hits the market at just $159, a 20% drop from the tablet’s old $199 price point. Amazon has also decided to compete more heavily with Apple (NASDAQ: AAPL), Google, and Microsoft (NASDAQ: MSFT) by offering a broad spectrum of tablets ranging from $199 to $599.
The exciting part is that Amazon’s $499 tablet can connect to any wireless signal – and its data plan costs a mere $49.99 per year. For comparison, Apple’s costs $14.99 per month, totaling nearly $180 per year.
Since Amazon’s plan is to augment revenue with ads and cross-selling, it pits the company against Netflix (NASDAQ: NFLX). Netflix allows customers to stream unlimited content for a beginning price of $7.99 per month, or $96 per year. Amazon hopes to sell other services, like Amazon Prime. Amazon Prime allows users free two-day shipping, and it allows customers to stream content directly to their tablets. No doubt this will steal away some of Netflix’s market share.
Netflix’s customer base has already been spliced from when CEO Reed Hastings decided to split the company in two last fall, so Amazon’s move could capitalize on Netflix’s current weakness.
Competition
Apple’s cheapest iPad starts at $499, and the accompanying data plan is priced at $180 per year. Customers will now have to think twice about how much having the Apple logo on their tablet really means to them.
Apple shipped more than two-thirds of all tablets so far in 2012, but Amazon’s new business model will likely bring that number down. When communicating the price differences, Bezos was clear that the new 4G Kindle Fire would save customers $400 in just the first year of ownership. Again, customers will have to think through: “How much is the sleek Apple logo worth to me?”
Microsoft is also in the tablet space with its Surface tablet. The tablet is sleek, new, and exciting - it is so exciting, in fact, that Microsoft has decided to give one to its 94,000 employees. However, Microsoft is once again late to the game. Amazon’s tablet goes live between September and late November giving customers a chance to jump on the new products immediately.
Microsoft has a history of being slow. Microsoft’s new Windows 8 is on Nokia’s Lumia 920 and 820 smart phones, but the phones will not be ready until sometime later this year, Nokia CEO Stephen Elop said. Once again, Microsoft’s slow production will hurt its market share because consumers likely won’t purchase more than one tablet – and they want that tablet now.
Barnes and Noble (NYSE: BKS) is still around, too. The company is continuing to run its Nook, which was released last year. The nook has some of the same features as Amazon’s Kindle Fire, but the device seriously lags Apple and Amazon. The company’s lowest-end reader cost just $99, and the Nook color, which can stream, goes for $149. However, look for the Nook to lose even more market share.
To conclude, Bezos is right. He isn’t just launching one of the best tablets – he is launching many of them at many different price points. And the beauty of his model is that the tablets only need to gain market share to be profitable, the company hopes. Thank you, Jeff Bezos, for helping to reinvent yet another industry.
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ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, Microsoft, and Netflix. Motley Fool newsletter services recommend Amazon.com, Apple, and Netflix. 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.If you have questions about this post or the Fool’s blog network, click here for information.
