Amazon’s Kindle Fire Threatens Google More than Apple

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Ever since Amazon (NASDAQ:AMZN) launched its tablet Kindle Fire on September 28th and announced that it would be selling it for a mere $199, the tablet has gotten a lot of interest from both developers and consumers alike, so much so that a recent study by Retrevo.com seems to suggest that more people are interested in purchasing Amazon’s upcoming tablet than Apple’s (NASDAQ:AAPL) tried and true iPad this holiday season. [1] We believe this poses a bigger threat to tablet rivals from Motorola (NASDAQ:MMI), HTC and other carriers using Google’s (NASDAQ:GOOG) Android.

Among developers surveyed by Appcelerator and IDC in North America, 49 percent said they considered the Kindle Fire their primary target, on par with interest for the iPad prior to its launch in April 2010. [2] Pre-orders for Amazon’s tablet have remained strong and the company seems to have recently increased its orders to more than five million units before the end of 2011. [3] Amazon is shipping out its Kindle Fire, starting Tuesday.

Early signs indicate that this may well be the first legitimate threat to the iPad. Lending more fuel to speculation that the tablet will suffer at the hands of its latest rival are rumors that the company has asked its suppliers to reduce shipments of supplies for its iPad/iPhone, which has weighed on the stock during the past week.

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However, we maintain our price estimate of $502 for the Apple stock, which is about 30% above market price. Our estimate for Amazon of $233 is just under 10% ahead of the market price.

See our complete analysis for Apple | Amazon here

Kindle Fire more than just another Android tablet

One big selling point of the Kindle Fire has been its $199 price point which should help the tablet become a real competitor to the iPad, along with Amazon’s brand image and content library. [4] We believe that Amazon is poised to become a major player in the tablet market. However, we feel that the most immediate impact will be felt not by Apple but by its competitors such as RIM’s Playbook and the pricey Android rivals such as Motorola’s Xoom and HTC’s Flyer. Why spend $600 for an Android tablet from present Google (NASDAQ:GOOG) partners if you can get a similar product for $199?

Apple’s rivals in the tablet market are sizable but they haven’t been able to significantly dent iPad’s demand so far and hence don’t individually matter much. However, most of these tablets, including Kindle Fire, run on Google’s Android which makes Google Apple’s major competitor. However the Kindle Fire is not a “pure Android product”. Instead, Amazon has basically built an operating system on top of the Android system, thereby differentiating itself from the Android pack. [5]

Fragmentation a key downside to Android

As time goes on and Google continues to develop Android in one direction while Amazon continues to take the Kindle Fire down its own unique path, the two platforms will be less and less alike, forcing developers to choose between the Android and Kindle operating systems. Additionally, the Kindle Fire doesn’t use Google’s Android Market, instead offering users the Amazon Appstore 2.0. At some point in the future, Kindle Fire might pose a threat to other tablets running the very operating system it had once drawn its identity from. [5]

While Google and Android-based tablets face the biggest threat from Kindle Fire, Apple will eventually start to feel the effects of a much lower-priced competitor. We do not see a 7-inch tablet providing an iPad-like user experience but as tablets see mass adoption and the market matures to include more price-conscious customers, Apple may eventually need to rethink its iPad pricing structure.

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Notes:
  1. Kindle Fire could be hotter than iPad this holiday season, BGR, November 10th, 2011 []
  2. Appcelerator/IDC Mobile Developer Report, appcelerator.com, November 2011 []
  3. Amazon increases Kindle Fire orders, DigiTimes, November 10th, 2011 []
  4. Amazon’s Kindle Fire: The Android tablet developers love most, CNET, Nov 2011 []
  5. Amazon Kindle Fire A Blessing For Apple In Google Battle, Forbes Blogs, Nov 2011 [] []