How low will
Amazon’s tablets go? We’re now hearing that a $99 Kindle Fire 7″ tablet is in
production, and will be shipping this year. At a price that low, the Kindle
Fire would be able to more easily compete at the tail end of the Android-based
tablet market – an area which is today dominated by low-cost tablets out of
China, often sold at the sub-$100 price point.
According to
what we’ve heard, the $99 Kindle Fire HD will also still sport a TI processor like the rest of the lineup, and will have a 1280×800
resolution, like today’s Kindle Fire HD 7″ does.
This report
follows an announcement Amazon made earlier this month about
reduced prices on its Kindle Fire HD 8.9″ devices. The Wi-Fi-only version will
now cost $269, down from $299, while the LTE version dropped from $499 to $399.
It also follows news of a forthcoming carrier billing deal that’s about to go live
- something which hints that Amazon is now scaling up and becoming more
aggressive with its product line up.
Typically, a
price drop signals one of two things – that the manufacturer or retailer is
attempting to clear out inventory ahead of a new model, or that it just wants
to sell more of the item, at a faster pace. According to other industry experts
with visibility into tablet usage trends we’ve spoken with, the Kindle Fire HD
8.9″ is not Amazon’s most popular model – the 7″ HD tablet is.
Today, that tablet is priced at areasonable $199, while the older (non-HD, 2nd gen.) Kindle Fire is an even lower $159.
While a $99
price may seem extraordinary, IDC Research Director on tablets, Tom Mainelli, says
that such a thing actually sounds reasonable. His firm just put out an updated tablet marketshare forecast this week, stating
that this year tablets running Google’s Android operating system would overtake the iPad for the first time. The Amazon
Kindle Fire, of course, uses its own forked version of Android.
Mainelli explains
that Amazon’s competition isn’t just the iPad, it’s all these low-cost tablets
running Android. Over Black Friday and the holidays in particular, you could
get a $199 HD tablet from Amazon, the slightly cheaper non-HD version, or you
could buy a $99 (or even in some cases $79) Android tablet from relatively
unknown manufacturers in places like Walgreens, CVS, Bed, Bath & Beyond,
and elsewhere.
“The
infrastructure is definitely in place for Amazon to go even
lower,” Mainelli says. “If they can sell the product at roughly what it
costs to build, that fits their long-term vision to make money selling you
content on that device. It’s entirely possible – physically possible – to
create a device that costs $99, particularly at the scale that Amazon
would do it,” he adds.
Android
tablets prices across the board are coming down, too, which also lends credence to this possibility. For
example, even HP recently announced a $169 Android device. Everyone in this
space is beginning to attack the sub-$199 price point, given that Apple has
staked out the high-end of the market at $329 and up.
So if the game
is becoming “how low can you go?”, Amazon is in a good position to compete
here, as it’s historically been a low-margin business. It doesn’t care what it makes from
tablets right now – it’s about getting consumers a device which connects them
back to the Amazon ecosystem, where they will spend on other Amazon products and
services.
Mainelli also
points out that the TI – the processor brand that Amazon uses in its current
Kindle Fire devices – has been getting out of the chip business. It was even rumored last fall that Amazon was in advanced talks to buy TI. That
never ended up happening, but what that story points to is that Amazon has deep
ties with the chip maker, and could have easily cut a deal where it agreed to
buy up TI’s remaining remaining stock for cheap. That could help Amazon now
deeply discount its tablets retail prices.
Amazon sold
4.8 million Kindle Fires in 2011 (shipping only in the fourth quarter), and in
2012, it shipped 10.4 million units worldwide, according to IDC’s estimates. It
has been widely reported that these tablets are sold at a loss, though Amazon CEOJeff Bezos told the BBC in October that’s not quite true.
“We sell the
hardware at our cost, so it is break-even on the hardware,” Bezos said at the
time.
Amazon could
break even at the $99 price point, and get its tablet into more people’s hands
by doing so, pulling them in to its ecosystem.
For what it’s
worth, Amazon denies that such a price drop will be happening. “We are already
at the lowest price points possible for that hardware,” a company
representative told us.
For that
hardware, maybe. [Source]
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