Updated: On Wednesday morning, Amazon.com launched its first-ever tablet, the Kindle Fire. The device - a 7-inch, Android-powered tablet with a color touch screen, and priced at $199, even lower than the $249 the Street had expected - will sell like hotcakes.
Live Blog: Amazon Unveils Kindle Fire
The company also unveiled three other new additions to the Kindle line: a new low-end model at $79; a WiFI-only touch-screen version at $99, and a 3G version with a touch screen for $149. Theses new lower-priced Kindles will both expand the market for e-books and put pressure on rival e-book makers. But there is no question that the big news this morning is the debut of the Fire, which creates new competitive challenges for the tablet sector, raises the profile of Amazon's streaming video service and creates dire new troubles for the retail sector.
For a lot of reasons, the Fire has the potential to be the first truly important tablet debut since Apple first unveiled the iPad. For one thing, as noted in an earlier post, there appears to be pent-up demand for a cheap Amazon-based mobile device that provides more capability than the Kindle e-book reader. But Amazon also has assets that many of the iPad's other rivals don't have. They have a vast online retail store. They have a downloadable music store. They offer streaming movie and TV shows - free to customers who use the $79-a-year Amazon Prime service, which provides free two-day shipping for many products. They offer a range of cloud-based computing services. And, of course, they offer a huge selection of electronic books.
In short, the device has the potential to be the Amazon front end to a vast array of cloud-based media and retail services. And that has ramifications for a wide range of companies in retailing and elsewhere.
Fiona Dias, chief strategy officer at ShopRunner, which provides a consortium of 90 retailers with Amazon Prime-like free shipping services, thinks the new tablet will be "incredibly powerful" for Amazon. At a $199 price point, she says, it will be hitting "a mass market price point," and demand is likely to outstrip supply in the early going. She thinks the company can't possibly be selling a device of the description that's been rumored at a profit - you can't do that for $199, she says. But Dias thinks the company has a whole set of ways to make that up - movie, song and book downloads, plus increased traffic to the company's core retailing empire. The new tablet, she says, "will sell everything that Amazon sells."
Dias notes that retailers already were looking at Amazon Prime as "an incredible weapon...an existential threat." The launch of the tablet, she says, is another "huge step in Amazon's war against store-based retailers." Amazon already was "destroying the retail business model," she says, and the tablet increases the pressure.
Dias notes that one thing that isn't well appreciated is that Amazon's advantages go beyond cheap shipping and - in some markets - no sales tax. She says that what many do not realize is that Amazon effectively can sell at prices below those set by other retailers by bringing in revenue from advertising. She says Amazon generates two types of revenue that falls into that category. One pile consists of fees collected from Amazon marketplace sellers. The other is the quiet addition of ads from external sites on product pages. Do a search for any common product, and down at the bottom of the page , underneath the section called "Customers Who Bought This Item Also Bought," is another similar looking row labeled "Product Ads from External Websites." She thinks Amazon has the potential to expand those ads beyond Amazon.com to other sites. And she notes that the added revenue allows the company to bring down product prices - think of the way that carriers subsidize handset prices with revenue from services.
The way Dias sees it, there are still things retailers can do to compete with Amazon. They can offer more services - PetSmart, for instance, offers veterinary service and pet day care, things you can't exactly order over the Web. Other retailers, she notes, are offering exclusive products - Ann Taylor and Aeropostale are selling their clothing lines only on their own sites and in their own stores. And she says retailers where they can should maintain fewer and smaller stores - although lengthy leases make that option a difficult one, as the bankruptcies of Borders and Blockbuster illustrate.
The emergence of an Amazon tablet also poses a serious threat to Netflix, she notes. It is hardly a coincidence that Amazon this week announced a new streaming content deal with News Corp.'s Fox unit. Dias thinks that Netflix could not have had worse timing in its decision to raise prices.
Dias does think the expanded adoption of tablets offers a silver lining for one slice of the retailing world: catalogs. Clickable catalogs on tablets, with their ability to display big high res images, could revive that aspect of the retailing sector.
Update: The news is giving a boost to Amazon shares, but knocking the wind out of rival e-book seller Barnes & Noble.
