The Kindle Fire: Down but not Out
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Google (NASDAQ: GOOG) rocked the tablet world last month with their $199 Nexus 7 tablet. The Nexus 7 is packing a quad core Nvidia built processor and with a complementary 12 core graphics processor. Since the Nexus 7 is a Google device it will run the latest stock version of Android, in this case Android 4.1 Jelly Bean. When the CEO of Nvidia took to the stage at CES this winter and promised a $200 quad core seven inch tablet based on their “Project Kia” reference design, there was some skepticism. But now Google has brought that to fruition. Google’s choice of Asus as their hardware partner is also interesting because they could have gone with Motorola, which is now a subsidiary of Google.
The Nexus 7 has received nearly universal positive reviews, especially when compared to the so-so Android tablets that have been released over the past few years. At $199 the Nexus 7 is targeted directly at the Kindle Fire and Barnes & Noble Nook tablet. Both the Kindle Fire and Nook Tablet are running a modified version of Android, are seven inch tablets and are roughly $200. Kindle Fire sales took off right after it was announced, and at one point had 17% of the tablet market. However in the latest quarter the Kindle Fire sold only 700,000 units. In the same quarter Apple’s (NASDAQ: AAPL) iPad sold nearly 12 million units. The Fire, whose sales are dropping, will continue to slump because the Nexus 7 is the same price but running a better, newer operating system and features much better hardware. All of the Amazon (NASDAQ: AMZN) digital services, which are the main selling point of the Fire are now duplicated by Google services on the Nexus 7. If you were partial to the Amazon services over the Google services, you can always download the Amazon Music app and the Amazon App Store onto your Nexus 7 and get the best of both worlds. According to the latest set of rumors Amazon, has realized that the Fire has just been rendered obsolete and is prepping new tablets for later this summer or fall.
According to a report in the China Times Amazon is planning to counter the Nexus 7 with an Aug. 7 release of a Kindle Fire 2. At this point it seems that it will feature a higher resolution screen and that Amazon will stick with the Taiwanese based Quantra as their hardware contractor. The recently rumored Amazon smartphone is reportedly coming from Foxconn, not Quantra. The original Fire drew a lot of mostly negative comparisons in form to the BlackBerry Playbook. An upgraded more elegantly designed Kindle Fire would be a welcome step. Other reports indicate that Amazon is prepping a line of Fire tablets with various screen sizes, internal components and prices. This would hopefully allow Amazon to compete not only against the Nexus 7, Nook Tablet, and potential iPad Mini but also the current 9.7 inch iPad and the forthcoming Microsoft (NASDAQ: MSFT) Surface tablets. There is also the potential that Amazon will be releasing a version of the Kindle Fire that has a 3G/4G chip, something that the Nexus 7 does not have.
Amazon needs to refresh their tablet line. After some initial success in 2011 the Fire is now dead in the water. Amazon was the first to make a tablet and sell it at or just below cost -- a third-party teardown from iFixit estimated that it costs Amazon $201 to make each Kindle Fire. Google has followed in Amazon’s footsteps by selling the Nexus 7 for $199, which Andy Rubin confirmed was selling the Nexus 7 with no profit margin. The Nexus 7 is also coming at least for a limited time with a $25 credit to the Google Play store. The rumor that Apple is about to launch an iPad mini at a lower price with a smaller screen means that there will be yet another excellent lower priced small tablet in the market.
Barnes & Noble (NYSE: BKS) is in more trouble with their Nook tablet. The Nook does have a rumored update coming, but the details are limited and not particularly inspiring. CNET reported that the update will include some sort of new screen technology. Barnes & Noble also does not have a full suite of digital services available on other mobile platforms, though they do have a digital bookstore. Microsoft made a $300 million investment into a joint venture with Barnes & Noble earlier this year that includes the Nook and textbooks. However after this partnership Microsoft went ahead and announced the Surface tablets with no mention of the Nook or Barnes & Noble. This means that it will be sometime before Barnes & Noble and Microsoft release a Nook that integrates both companies' services, and that’s assuming Microsoft wants to update an Android-based tablet.
Amazon is doing the right thing -- a refreshed tablet, potentially a whole line of tablets and maybe even an Amazon smartphone launching in the next few months. This is the only type move that can keep Amazon relevant. Amazon has a loyal customer base and with services like Amazon Prime their refreshed selection of Kindle hardware will be successful enough, though not as popular as the iPad or Nexus 7. Barnes & Noble at this point should look into transitioning their Nook tablet to Windows 8 RT, the tablet version of Windows 8. This would give them a full operating system, unlike the limited modified version of Android the Nook Tablet currently runs. A refreshed version of the Nook launching near the end of 2012 without the transition to a full tablet operating system like Windows 8 RT will not be enough to save the Nook Tablet. The infusion of cash by Microsoft buys breathing room for Barnes & Noble, but as digital becomes more important to Barnes & Noble as a company they cannot afford to let their offerings slip, or release a new product that can’t compete.
ded004 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, Google, and Microsoft. Motley Fool newsletter services recommend Amazon.com, Apple, Google, and Microsoft. 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.