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Amazon.com Inc has announced its entry into the hotly contested tablets market, with the launch of Kindle Fire on 28 September 2011. In this article, Euromonitor International assesses this latest addition. Although strong sales are projected for Kindle Fire, it is not expected to knock iPad off its perch.

Not an easy market

Volume sales of tablets are forecast to overtake volume sales of laptops by 2015, as seen in the graph below, with global retail sales exceeding 163 million units. Manufacturers like Samsung, Motorola and Acer have jumped onto the tablets-craze bandwagon and launched tablets. However, all the manufacturers have so far failed to make serious dents in Apple’s iPad sales which accounted for 84% of tablets sold in 2010. Such is the competitive landscape that the global market leader in computers, Hewlett-Packard Development Co LP (HP) is the first to throw in the towel. HP announced in August 2011 that it is to discontinue its TouchPad tablets and webOS development, despite having spent US$1.2 billion acquiring Palm Inc (and its WebOS operating system) in 2010.

Global Retail Sales of Portable Computers

Pic1
Source: Euromonitor International

Fire-ing up revenues

Kindle Fire is a strategic move by Amazon to drive its revenue on content sales and to capture a larger slice of internet retailing sales beyond PC users. Kindle Fire has a few differentiators to distinguish itself from iPad and other tablets in the market, namely:

  • Price
  • Content
  • User interface
  • Connectivity

Other manufacturers have priced their tablets using iPad as a point of reference, but Kindle Fire has definitely been priced to sell, retailing at just US$199 compared to iPad’s US$499. This low price point is typically considered by marketers as the magical price point that can trigger impulse purchases by consumers.

Prior to the launch of Kindle Fire, Amazon was busy behind the scenes, acquiring and building its content portfolio. For example, Amazon has signed a deal with Twentieth Century Fox, adding to its existing agreements with CBS, NBCUniversal, Sony and Warner Bros, to enhance its instant video streaming services. Amazon now offers its Amazon Prime members 11,000 films and TV shows for the US market.

Amazon has also revamped the Android interface on which its Kindle Fire has been developed. Additionally, the company has revolutionised the internet retailing market with quick checkout and recommendations features. This same ease of use will be the cornerstone of Kindle Fire’s interface, with customers expected to enjoy ease in products and services purchase and a seamless user experience.

While Kindle Fire does not have the Whispernet feature found on Kindle e-readers, which allows 3G connectivity for content download anywhere in the world, Amazon is offering Whispersync, which allows users to synchronise content from the tablet to Amazon’s cloud storage via WiFi. Whispernet is not being offered on Kindle Fire to keep the price low on hardware and 3G data costs, which was paid for by Amazon for its e-readers. Lastly, 3G connectivity does not offer the same bandwidth for seamless video streaming as high-speed broadband via WiFi.

Much has been made of the rise of internet retailing, especially in developed markets like the US. Non-store retailing (primarily driven by Internet retailing) in the US is expected to account for 11% of total retail sales by 2015. However, in absolute terms, retail sales from store-based retailing is worth US$2.8 trillion, compared to just US$337 billion for internet retailing. Clearly, Amazon is aiming to increase its revenue from Internet retailing and gain a larger slice of the total retail revenue in the US.

Aiming for a bigger share of the pie

Storebasedretailing
Source: Euromonitor International

The Kindle Fire will help Amazon reach out to larger demographics of non-PC users and garner a slice of store-based retailers’ revenue. While mobile commerce shows promise with the proliferation of smartphones, tablets like Kindle Fire have larger screen sizes, which are better suited to browsing and the data entry of shipping addresses and credit card details.

Breaking records

Sales of tablets in the US is expected to hit 19 million units by 2011 and enjoy 50% growth in the following year, based on Euromonitor International’s latest research. iPad sold three million units 80 days after its introduction in the US, and Kindle Fire has the potential to break iPad’s record. Amazon is expected to learn from its earlier mistake of not stocking up on its first e-reader (Kindle) and ensure that its factory increases production in time for the peak holiday season, when Euromonitor International expects Amazon to announce its quarterly revenue to be the highest ever. Additional revenue will primarily be driven by online sales directed by Kindle Fire however, rather than by sales of the tablet itself.

iPad to remain the leader

The impact of Kindle Fire will force other tablets manufacturers to consider the complete Ecosystem (content, services and products), beyond just selling hardware.

That said, Amazon’s content agreements with the movie studios are limited to the US and are not applicable in the rest of the world. Kindle Fire was not designed to be an iPad killer but as a catalyst to drive Amazon’s online sales. iPad’s global reach and Apple’s strong brand name will ensure that the Cupertino-based company retains its market leading position, at least until a real iPad killer comes along or Amazon negotiates similar content deals outside of the US.

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