Kindle Fire outpaced other Android tablets with an estimated 6 million units sold in Q4 2011. So, Why the long face from investors for the iPad2 runner-up? Well, despite volume, Amazon’s profits plummeted 58 percentduring the holiday season. Which raises the question: Is the e-giant still in a strong position for tablet computing?
Amazon’s strategy to knock the untapped segment of average 9-to-5 consumers pays everything except dividends. The carefully curated components of Fire still have a wholesale price tag of $150, writes Mario Aguilar, Gizmodo columnist. Fire sells for $199 retail, leaving hardly any margin when considering Amazon still needs to pay big box retailers, such as Best Buy, to carry the product.
So what may you ask did Amazon gain by giving customers “something for nothing?” Besides a chance at your business, Amazon hopes it can offer something unique that ropes customers in to its expanding digital services. Amazon boasts a whole ecosystem chalk-full of free videos, e-books and content exclusive to Prime members. “We’re very pleased with the growth we’ve seen in our digital content that we’re offering as part of Prime,” said Tom Szkutak, Amazon chief financial officer in an interview with Mashable. Although Amazon has not released the tally of new Prime memberships added since Q4, analysts can be hopeful since each Fire purchase includes a free 1 month trial as an incentive. Prime accounts grow 20 percent year-over-year since it originated in 2005, writes Scot Wingo, Chief Executive Officer of Channel Advisor Corp. It will be interesting to see whether digital sales can compensate for Amazon’s “fire” sale on hardware.
The question remains whether Apple customers are more loyal than Amazon clients. It’s too early to tell if Amazon can develop “brand love”- a careful chemistry of emotion and logic characteristic of Apple customers and key to Apple’s market dominance. But it seems the good people at Amazon are letting value speak, as seen in the Kindle Fire’s first commercial here.
Long-term effects of branding aside, the impact of the Kindle Fire’s low price point will help Amazon capture the huge ocean of potential tablet owners.
The combined sales of Fire and Ipad2 (80% tablet sales) are still in the meager 20million range for Q4 2011. If it’s fair to say every adult with a smart phone will buy a tablet in the next three years, then the potential prospects are huge.
Before you say that’s ridiculous, consider this:
- 35 percent of American adults own a smart phone (total 307million), according to Pew Research.
- The ratio is even higher at 44 percent when including young adults, according to Nielsen Wire.
- One-third of the adult population in America already owns a tablet or e-reader, according to Pew Research.
For fun, try using yourself as a market indicator. When do you expect to cave to peer-pressure (or necessity) and adopt your own digital tablet? What if it’s under $200? More likely, I bet.
By trying to be the next household name in the tablet market, Amazon is giving up the house to keep with the Joneses. And, I think Amazon is OK with that.
Charles works in Sales & Marketing at PQ Labs Inc. His interests are in men’s fashion, technology and society. He graduated from San Francisco State University and lives in San Jose, CA. You can subscribe to him on Facebook (facebook.com/charlesbecker) for frequents of his current obsessions.