Kindle Fire Threatens Apple’s Tablet Dominance

When people talk about the “tablet market,” they’re really being polite. The tablet market has been iPad. But that might change now that Amazon is throwing its hat in the ring with Kindle Fire, which could yet prove a compelling alternative to the Apple’s tablet wunderkind.

The Kindle Fire is already drawing early attention from brands and publishers, eager to try any new platform that gets significant traction. But the road to success is filled with early casualties, like the HP TouchPad, which was basically given away before it was scrapped, and the BlackBerry PlayBook which continues to sell sluggishly. But Kindle Fire is unlikely to meet that fate, according to analysts, particularly thanks to its price ($199) compared to iPad’s ($499).

“Apple’s place as market leader is secure, but Amazon will be a strong number two, and we expect no other serious tablet competitors until Windows 8 tablets launch,” said Forrester analyst Sarah Rotman Epps. “Amazon will sell millions of tablets, and the rapid-fire adoption of the Kindle Fire will give app developers a reason — finally — to develop Android tablet apps.”

Publishers will follow audiences, though, and most will probably wait to see some sales figures before jumping into the development of Fire-specific products. That said, early indications suggest sales are going strong, and Amazon said it’s already building “millions more” devices than it had planned in order to keep up with unexpected demand. Estimates from JP Morgan suggest the company is on track to sell 5 million units by the end of this year and over 25 million by December 2012.

Most publishers appear cautiously optimistic about the Fire’s potential, and some have already invested in content specifically tailored to the device. Kindle Fire Newsstand will launch with access to over 400 magazines and newspapers, including Vanity Fair, Elle, O, and The Oprah Magazine, for example, and there’s also access to audio and video content through Amazon’s own channels, of course. There’s also space for third-party content providers such as Hulu and Pandora, and Netflix has even launched a revamped version of its app for the Fire before doing so for the iPad.

“This will encourage more marketers and brands to develop content for Android devices,” predicted David Berkowitz, who heads up the emerging media practice at Dentsu-owned digital agency 360i. “The Fire doesn’t run everything that’s in the Android app store, so fragmentation issues continue, but media companies – or brands that act like them – will be especially enamored with adapting to the Fire.”

One thing is for sure: Far more people will access content via tablets thanks to Kindle Fire. Amazon is basically subsidizing the device as a loss leader in order to push more of its other services to customers. In effect ,that could give publishers and marketers an easy opening.

“Amazon’s strategy is to increase adoption of the device along with content consumption, so there’s more demand for some of their key services including their e-commerce business along with advertising opportunities for marketers,” commented Dirk Rients, a mobile platforms expert at Draftfcb, adding, “That attention and potential new audience is already exciting marketers.”

Amazon has decided to sell each unit at around a $30 loss, Rients suggested, hence the relatively affordable $199 price tag. That’s a considerable savings on the $500 iPad 2, leading some to suggest Apple might find itself under increased pressure to drop its prices in order to compete. Goldman Sachs analyst Bill Shope recently concluded the iPad 2 is “facing some near-term demand challenges,” and it is “overdue” a price cut, for example.

Apple doesn’t just face competition in the hardware space, though. If the Fire sells as well as analysts predict, the company may need to bend much more to the needs of publishers than it might like, both financially and otherwise. The emergence of a significant number two player will limit Apple’s ability to dictate the market dynamics as it is often able to do.

“Prices will continue to drop, and more consumers will be able to purchase these devices which will help continue to grow the overall electronic-content-consumption market,” Rients said.

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