Sould Apple be Wary of the Fire Kindled by Amazon?

Shane Samir is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Well, a lot has been doing the rounds on Apple’s iPad and Amazon’s Kindle...so much so that one can’t really keep away from analyzing as to what these two giants really want out of their multi-faceted gadgets and whether or not what they are getting satiates their thirst for more.

Amazon’s (NASDAQ: AMZN) CEO Jeff Bezos vehemently pronounced earlier in the day that “People don’t want gadgets anymore...they want services that improve every day, every week and every month.” If Bezos’ proclamation is anything to go by, I must say that this man knows clearly what he wants and Apple (NASDAQ: AAPL) needs to stay alert.

It’s quite ironic that last year at the very onset, Amazon’s Kindle Fire, considered by experts and users alike a catastrophic threat to Apple’s iPad, was later quite ridiculously written off as a misfit by the same experts and users. To this, Bezos brusquely explained the price strategy for his Amazon gizmo saying that his company aims to align with his consumers in such a way that the company makes money only when the consumers use his devices, and not when they buy the device.

Having said the above, I can clearly say that Amazon is once bitten twice shy as they have clearly learned a lesson after the release of the first edition of the Kindle last year. At the very onset, Amazon was set to target a filtered crowd who wanted a tablet for media consumption, but were reluctant to pay iPad prices. Amazon, having no monetary restrictions, can afford to sacrifice hardware margins for installed base growth. Lo and behold, Bezos recently announced he wants to have the best tablet in the market at any price. Quite a bargain for the consumers!

The new improvised Kindle Fire will grace our palms with 7 and 8.9 inch HDs, with tech-defying specs worthy of an honorable competition in the market. The good news for us users is that as Amazon is not all that worried about seeking profits from the device, the device in itself will be cheaper on our wallets. Voila!!

The premium-end 4G enabled Kindle Fire HD costs about $499, a cost at which one can only think of buying a meager Wi-Fi version of the iPad.

The bargain doesn’t quite end there. The new Kindle Fire HD boasts of having features matching that of arch rival Apple’s iOS, making this amazing Amazon gizmo rich in content, an ecosystem more attractive, addictive and easy-to-use than ever before.

In the new avatar of the Kindle Fire HD, you get an unparalleled feature called ‘Time to Read’, which shows how much time it took you to read a chapter and also compares this time to your previous reading habits. There is also this feature called ‘FreeTime’ which allows parents to actually keep a check on their children’s gaming obsessions.

Amazon now boasts of a user base that would put an enviable blush on Apple’s face as well, what with an “Alladin’s wealth” of data on purchasing history. It sure has coveted content which includes over 120,000 movies and television episodes, millions of songs from over two million artists, millions of book titles which includes 180,000 titles exclusive to the Kindle store, not to forget thousands of magazines and news dailies with vibrant full-colored layouts, high-definition photography with descriptive illustrations.

Well, there are always two sides to a coin. Kindle Fire is quite evidently and, of course, unfortunately a US-centric device, much unlike Apple’s iPad. Apple's iPad rakes in the moolah by selling its device across the globe. Apple’s iPad has its mark in over 62 countries across the map, which in itself is a phenomenal feat and maybe that is why one realizes that the Kindle Fire will not really make a dent in Apple’s pockets. Not unless Amazon brings about media content to sell in other countries, selling the Kindle will not get much to Amazon really. Content deals in international markets can get really daunting but that’s exactly what Amazon has to set its target on. Look at what Apple earns from iTunes-as compared to its earnings and profits from the sale of iPads. Apple’s earnings through iTunes is meager. Despite this, Apple ensures that its music, movies, books and apps are available in as many countries as possible and that is a real stand out for Apple. Having said this, if Kindle Fire wants to give real time competition to a seasoned iPad, it has to make content available in the global market—tough thing to do, but surely not impossible.

So, now we come down to pondering over a thought—will Amazon’s strategic profit making model of “earn when consumers use” do any good to sustain profits in the long run? And more so in a widely competitive market which surely drives content prices lower. Talking of Amazon, the Kindle is not central to the company’s business model. Amazon does have huge and healthy investments in retail and web services. They sell a much wider range of commodities and services than their counterparts Apple and also Google. Thus it is indeed predictable that the Kindle Fire keepers will buy more than just digital content.

A leader like Bezos, who is known to have created quite a stir since 1997 in the business arena, the odds are surely in Amazon’s favor.  Bezos very inspiringly puts it to his consumers and critics alike saying that Amazon is willing to sow seeds and let them grow; Amazon is stubborn on vision and flexible on details.

 


shane123samir has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Amazon.com. Motley Fool newsletter services recommend Apple and Amazon.com. 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.

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