Amazon - Kindle Fire

The companies are creating virtual shopping malls that have made it very easy for customers to shop online. There are pros and cons to businesses operating on the web, however, the GenY consumer has already indicated their comfort in technology enabled solutions. One company that has revolutionized this concept is Amazon.com. A company that has been respected as one of the most innovative companies, the birthplace of Kindle, and many such concepts. They have been a leader in E-commerce and shopping online.

I recently read an article about their new Kindle Fire. According to the article, Amazon is entering the tablet industry by launching the Kindle Fire in direct competition with the Apple’s iPad at a price of $199, much lower than the Apple iPad of $499.

Amazon, a big online retailer has offered the Fire with fewer features than the iPad at a very low price, with an additional advantage of providing the customer access to its digital store of movies, music and easy access to online retail products. Expert’s opinions vary on the new move. Some pessimists worry that Apple has too big or a market share and that others like HP and Blackberry have failed. Conversely, others make the assumption that it will increase content sales by having a closer customer touch point.

Economies of scale will also give an additional advantage assuming Amazon is able to gain market share. If manufacturing costs remain stable and if Amazon gains customer recognition due to its promotion efforts and low cost it can take Apple’s market share. It all depends on the volume of sales.

We also need to look at them cannibalizing their e-readers. I think this is one limitation of the research in the article. If the white and black Kindles have a better contribution margin than the Kindle Fire, their sales mix will hurt their overall profits. I assume they will be replacing profitable products with others that are less profitable. They should conduct an analysis, assuming a certain percentage decides to purchase the Kindle Fire versus the older versions to see how it will affect Gross Margin.

Conversely, there are other revenues, besides the Kindle Fire purchase price, that Amazon will receive as a result of the sale. They will benefit from additional content purchases made on the Fire such as music, videos, games and books. However, iPad users are already able to make these purchases from Amazon on their iPad, so the questions is, how much will the incremental purchases be? I’m assuming, Amazon can market this product for a segment that wants a product like the iPad but is not willing to pay the $499 minimum price. However, the problem when you compete on price is that all your competitor has to do is lower their price. I anticipate a new product launch next year by Apple to compete for this same segment with a cheaper iPad. Amazon.com is focusing on the low cost strategy, which only works with a good market share. In this fast paced, technologically changing environment, Amazon.com will need to keep on differentiating their product by providing additional features, which will negatively affect cost directly. Therefore, the low-cost strategy will not be a strength in the long run. In conclusion, the statement that Amazon.com will not be making much money is realistic.. The only hope for Amazon, is their advantage of large base of online retail customers and access to online data sources. Amazon’s focus on extra features should be more than the low cost strategy. Low cost will give an additional benefit but differentiation is necessary in the high tech industry.

http://online.wsj.com/article/SB10001424052970204138204576598670632549928.html#ixzz1aawcmn5f