Bloomberg News

Amazon Challenges Apple With Updated Line of Kindles

September 07, 2012

Amazon Challenges Apple With Updated Kindles in Crowded Market

Jeff Bezos, chief executive officer of Amazon.com Inc., introduces two screen sizes of the Kindle Fire HD tablets at a news conference in Santa Monica, California, on Sept. 6, 2012. Photographer: Patrick Fallon/Bloomberg

Amazon.com Inc. (AMZN) unveiled a new line of bigger, faster and sleeker Kindle e-readers and tablets, presenting a fresh challenge to Apple Inc. (AAPL)’s dominance of the market with the iPad.

The Seattle-based Web retailer introduced devices yesterday ranging in price from a $69 ad-supported e-reader to the $599 top-of-the-line Kindle Fire HD, backed by 22 million movies, TV shows, songs, apps, games, books and magazines.

Chief Executive Officer Jeff Bezos is retooling the tablets as consumers face a widening array of choices, including new entries from Google Inc. (GOOG) and Microsoft Corp. (MSFT) At stake is a piece of a market that may reach $66.4 billion this year, according to research firm DisplaySearch.

“This wasn’t a product announcement as much as it was a declaration of war,” said Michael Gartenberg, an analyst at market research firm Gartner Inc. “It’s clear that Amazon is going to go after Apple customers. Amazon at this point is not a company Apple can ignore as a competitor.”

Amazon gained 3.1 percent to $259.14 at the close in New York, a record high. The stock has climbed 50 percent this year.

To woo users from Apple, Amazon relies on the Kindle to help sell digital movies, books and music -- an effort that may be bolstered by the revamped device. Still, the company will soon face increased competition from Apple, which will introduce a smaller, cheaper iPad by year-end, two people with knowledge of the plans said in July.

Facebook, Skype

The newest line, called Kindle Fire HD, includes a model with a 7-inch display for $199 or $249, another with an 8.9-inch screen for $299 or $369, and a $499 or $599 version with 4G long-term evolution wireless technology, one of the fastest mobile networks available. Prices depend on the amount of memory included in each device.

The Fire HDs that begin at $299 -- with screens slightly smaller than the iPad -- are thinner, offer similar memory and a more robust sound system for a lower price. The data plan for the 4G tablet -- $50 a year -- costs $180 less a year than a comparable plan for Apple’s iPad, Amazon said.

The Kindle Fire HDs have custom-built apps from Facebook Inc. (FB), operator of the world’s largest social network, and Skype, the Internet-calling service bought last year by Microsoft. Based on Google’s Android mobile device software, they include front-facing cameras for video-calling, Bluetooth and dual stereo speakers with Dolby Digital Plus audio. They also boast two antennas designed to improve wireless connectivity.

Share Battle

“Last year there were more than two dozen Android tablets launched into the marketplace and nobody bought them,” Bezos said at an event in Santa Monica, California. “People don’t want gadgets anymore. They want services. Kindle Fire is a service. It greets you by name, it comes out of the box with your content preloaded, it makes recommendations for you.”

Amazon’s share of the global tablet market slipped to 4 percent in the first quarter from 17 percent in the December period, according to IDC. Apple’s lead widened to 68 percent, the Framingham, Massachusetts-based research firm said.

“The launch is important as it sets the stage for a fierce market share battle with Apple and Google -- or more likely a battle for second place, given Apple’s significant advantages,” said Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco.

Microsoft, Google

By offering more features, streamlined access to media and lower prices, Amazon is trying to draw users into its ecosystem of online content, shopping and data storage.

“If we made our money when people bought the device, we’d be rolling out programs left and right to try to get you to upgrade,” Bezos said. “We want to make money when people use our devices, not when they buy our devices.”

The original Kindle Fire, which Amazon started selling in November for $199, cost the company $139.80 apiece to make, according to IHS. Each may generate a total of about $150 in sales over the lifetime of the device, including revenue from advertising and money spent on books, videos and music, said Herman Leung, an analyst at Susquehanna International Group.

Amazon also introduced the Kindle Paperwhite e-book reader with a higher-resolution screen for $119 and a 3G version for $179. It has a light that is directed toward the screen, versus being lit from the back, which means it works well even in direct sunlight, Bezos said. It also tracks users’ reading time and predicts how long it will take to finish a book.

Rival Tablets

Google, which makes the Android software that runs the Kindle Fire, offers the Nexus 7, a tablet that is lighter than the new line of Kindles and costs $199 or $249, depending on memory. It also boasts GPS, which the Kindle Fire doesn’t have.

Microsoft’s device, the Surface, has a 10.6-inch display. It will run on Microsoft’s revamped Windows operating system and has a cover that serves as a full keyboard with a track pad. The company hasn’t disclosed the price.

Amazon seeks to offer video-watching and game-playing experiences that consumers can’t find on any other device. That may change the landscape for tablets heading into the fourth quarter, when sales of consumer electronics tend to ramp up during the holidays, Gartenberg said.

Amazon said in August that exclusive Kindle books have been purchased, downloaded or borrowed from the company’s virtual lending library more than 100 million times. Amazon doesn’t give revenue figures for purchases on the tablet. The company’s sales of all digital media last year reached $17.8 million and accounted for 37 percent of revenue, data compiled by Bloomberg show.

“It’s not going to be about hardware,” Gartenberg said. “It’s going to be a battle of operating systems and ecosystems. They’re going to drive consumer purchases in a very big way. Today’s announcement should put any Android vendor that’s building a tablet on notice.”

-- Editors: Reed Stevenson, Lisa Rapaport

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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