Is Kindle Fire HD a threat to the iPad?

Let’s start by pointing out that Kindle Fire HD is actually three devices -

  1. Kindle Fire HD 7″. This Kindle Fire HD is just $199. It has a really impressive screen that has 90%+ of the pixels per inch of the iPad 3. Which means that unless you have Eagle Eyes you won’t really be able to tell the difference.
  2. Kindle Fire HD 8.9″. This Kindle Fire HD is just $299 – that’s a HUGE discount from the $499 iPad 3.
  3. Kindle Fire HD 8.9″ with 4G LTE. This Kindle Fire HD is $499 and the most comparable to iPad 3 in terms of features.

All three Kindle Fire HDs are available in the US. The first two are also available in UK, Italy, and Germany.

The USA is the REAL PRIZE … for Now

The Next Web thinks Kindle Fire HD won’t be a threat to the iPad until it is available internationally and until it is available in more than just 4-5 countries. I’m actually going to use EXACTLY the same part that is the focus of their argument to prove my case -

Apple, to use an example, has sold around 55M iPads total as of earlier this year.

The Apple v. Samsung case opened the books enough for us to see that 34M of those were sold in the US.

That leaves some 21M for the rest of the world. That’s over 38% of Apple’s iPad business overseas. The worldwide market cannot be ignored.

The facts seem to suggest the exact opposite – That the worldwide market can be safely ignored for the moment.

Why worry about 38% of the business when 62% is right here in the USA?

America also happens to be the country where Amazon is the strongest. 34 million iPads sold in the USA in 2012 so far. Amazon wants a piece of that.

The question is – Can Kindle Fire HD carve out a piece of the Tablet Market for Amazon?

Well, actually, we sort of have THREE Kindle Fire HDs

The first thing we need to clear up – There are actually THREE Kindle Fire HDs and each of them is going for different market segments.

Instead of – Is Kindle Fire HD a threat to the iPad?

We should actually be asking ourselves – Are the three new Kindle Fire HDs a threat to the $499 iPad 3 and the $399 iPad 2?

We might as well complicate things and assume an iPad Mini is in the works – Are the three new Kindle Fire HDs a threat to the rumored $249 iPad Mini?

In this post we’ll attempt to answer these questions.

The Hard Core iPad 3 Market Segments

There are certain market segments that are NEVER going to choose anything other than an iPad -

  1. People invested in the Apple ecosystem in terms of content. If you have a lot of books and apps and movies in iTunes – you are going to stick with iDevices.
  2. People invested in the Apple ecosystem in terms of devices. If you have a Mac Book Air and an iPhone – you are very likely to choose an iPad as your Tablet.
  3. People who TRUST Apple.
  4. People invested in the Apple ecosystem in terms of credit card information, convenience, and familiarity. People who are used to, and comfortable with, buying from Apple.
  5. People using Tablets to signal status.
  6. People invested in Apple as part of their identity.
  7. People who simply want ‘The Best Tablet’ without regards to money. Kindle Fire HD has to unseat iPad 3. It hasn’t yet. So, for people who just want to buy ‘The Best Tablet’, the only choice is iPad 3. I’m not saying it is the best. I’m saying the perception is that iPad 3 is the best and perception is reality until it is shattered by actual reality.
  8. People who want the Easiest to Use and Smoothest Tablet. Kindle Fire HD has to show it’s easier to use and smoother (which is, to be honest, very unlikely).
  9. People who don’t want Ads on their Tablet.
  10. Certain other demographics such as people who dislike Amazon and people who highly value aesthetics and people who feel 10″ is the perfect size.

There are certain core groups of people who will NEVER switch from Apple. It might be as high as 35 to 50 million people. They are locked-in to the ecosystem or they are focused on the aesthetics or they identify themselves with Apple in their very core or they are focused on the status signalling aspects.

These are the people who must have the latest iPad. Amazon isn’t interested in them at all. Even if if were it wouldn’t matter because they won’t leave Apple (unless Prada starts making smartphones, bonus points if you get the reference).

The Hard Core Kindle Fire HD Market Segments

Luckily for Amazon, it has some very strong market segments of its own. People who will ALWAYS choose Kindle Fire HD (provided Kindle Fire HD is at least close to the iPad 3) -

  1. People who TRUST Amazon. Amazon has had customers since 1995. That’s 17 years and that means a lot of long-term customers. An excellent post on Amazon’s strategy and how it focuses on its customers.
  2. People invested in the Amazon Store. They are used to the store. They have their credit card information. They know all the ins and outs. Amazon.com is the path of least resistance for these people.
  3. People focused on value. Irrespective of how rich or poor people are, there are certain groups of people who always want ‘value for money’ and they will often choose Amazon.
  4. People too lazy to try other stores. Amazon.com is the path of least resistance.
  5. People invested in the Amazon ecosystem or in Kindles. If you already have Amazon content and/or Kindles, then you will go with Kindle Fire HD.
  6. People invested in Amazon Prime.
  7. People who want choice or prefer a 8.9″ or 7″ screen. The availability of both 7″ and 8.9″ Tablets is an advantage for Amazon. It might be nullified once iPad Mini comes out.
  8. People who can’t afford a $499 Tablet. This is a fact lost on a lot of journalists who get all their devices for FREE. $499 has to come from somewhere.
  9. People who can’t afford a high cost data plan. Anyone who actually tallies up the data costs knows just how ridiculous data plans are.
  10. People who want a low-price Tablet for their kids. Again, the iPad Mini will complicate this if it’s sufficiently cheap.
  11. People who prioritize value for money over smoothness and aesthetics.
  12. People who gave up on Apple after the anti-1984 Patent Strategy. Apple going after Samsung Galaxy SIII after it sold 20 million units in 100 days is beautiful strategy on Apple’s part. It’s also seems despicable to anyone who finds patents annoying and who realizes that protectionism is detrimental to progress.
  13. Certain other segments such as people who love Amazon for some reason or who disdain form over function or who find Apple Device flashing people annoying.

These are the market segments that Amazon was losing. By having only a budget $199 Kindle Fire, Amazon was losing huge chunks of these market segments to Apple.

There are a LOT of people who would NOT buy an iPad if ANY decent alternative were available. All those people now have a decent alternative. In fact, they have three.

The Three Kindle Fire HDs win ALL these market segments for Amazon. It might be as little as 5 million people a year. My guess is that it’s more like 15 million people a year.

These three Kindle Fire HDs are going to win Amazon 15 million people a year out of its core market segments – People who would prefer an Amazon device.

Note: Microsoft Surface Tablets might/will/could split this segment with Kindle Fire HD.

The ‘Anything but an iPad’ Market Segment

There are hundreds of millions of people (perhaps 50 million or more in the US alone) who love Android and/or Microsoft and dislike Apple. There are also people who just find the Apple focus on aesthetics and minimalist design and nouveau riche status signalling rather annoying.

These people were stuck. There really wasn’t any good Android or Windows Tablet. Until Nexus 7 came out.

For them, suddenly, there are three additional very good non-iPad options – the three Kindle Fire HDs.

If you use an Android Phone and/or if you love Windows and/or if you detest most of the things Apple stands for. Then which would you rather choose -

  1.  An iPad 3.
  2. A Kindle Fire HD.
  3. Nexus 7.

A significant number will choose Nexus 7 and a significant number will choose the three Kindle Fire HDs.

The ‘anything but an iPad’ market segment is a HUGE segment. People are going to be VERY surprised when Kindle Fire HD and Surface Tablet and Google Nexus 7 sales figures are revealed at the end of 2012. There are a LOT of people who have been patiently waiting for non-iPad Tablets that are very good.

The Undecideds

Perhaps the largest market segment is people who are undecided. These people had just two good options (iPad, Google Nexus 7). Please Note: At any given time there has just been one good non-iPad option. It was Nook Color in 2010 and 2011, Kindle Fire in Holiday Season 2011, and Nexus 7 since its launch.

Now they have a LOT of options. The Three Kindle Fire HDs come in at $199, $299, and $499 (with a cheap data plan for the first year for this one). This means that users have to make some hard decisions on what they value most.

If we keep in mind that most people use Tablets for surprisingly mundane things – email, surfing the web, movies, reading books, playing games. Well, the price and size differences are accentuated. Paying $499 for a device where your top 3 uses are email, surfing the web, and movies is rather hard to rationalize. Especially when there are $199 and $299 devices that are just as good at these three core things. Plus the cheaper Tablets are a more convenient size for a lot of people.

This huge market segment of Undecideds had ONLY the iPad as a good, safe choice in 2010 and most of 2011 and most of 2012.

Now it has iPad and three Kindle Fire HDs and Nexus 7. Soon it will have Surface Tablets and Nook Tablet 2 (we shouldn’t discount the potential value of having 700+600 stores to sell Nook Tablet 2s from).

What are we driving at?

Five things -

  1. Talking about the international market is premature. It’s the third year of the iPad’s availability and America is still accounting for 62% of iPad sales. Whoever wins America has a better chance of winning the world.
  2. Amazon increased the number of GOOD VIABLE Tablets from 2 (iPad, Nexus 7) to 5 (iPad, Nexus 7, $199 Kindle Fire HD 7″, $299 Kindle Fire HD 8.9″, $499 Kindle Fire HD 4G LTE). That’s a BIG jump. B&N and Microsoft might increase it to 9.
  3. There are market segments that would definitely prefer an Amazon device and Kindle Fire HD is going to definitely win over those.
  4. There are market segments that would NEVER buy an iPad and Kindle Fire HD is going to win parts of those.
  5. There is a very large UNDECIDED Market Segment and Kindle Fire HD is going to win part of that segment.

Fundamentally, the Kindle Fire HDs do a lot of things that make life difficult for Apple.

Ways in which the three Kindle Fire HDs make things difficult for iPad

  1. Users get THREE new good Tablet options. It’s absolutely inconceivable that ZERO people considering an iPad or iPad Mini will not instead pick one of the three Kindle Fire HDs.
  2. By pricing at $199, $299, and $499, Amazon has created a huge Value Gulf. Yes, people are willing to pay more for iPads (especially people who view them as status signallers and/or part of their identity). However, people also start questioning whether what they are paying is justified. $299 for an 8.9″ Kindle Fire HD or $499 for an iPad 3 – You have to fill that $200 Value Gulf somehow. There is only so far that a minimalist design asethetic can take you when trying to cross that huge Value Gulf.
  3. People who are for Amazon or against iPad will be FAR MORE LIKELY to pick a Kindle Fire HD.
  4. Apple has to release iPad Mini which creates less profit per unit than iPad. We’re talking about a company that makes $200 to $400 per iPhone and $200 or so per iPad. Now it is being forced to sell $249 Tablets. At most it will make $50 to $100 per iPad sale. That’s far less profit per unit. Even if Kindle Fire HD loses to iPad Mini it kills Apple’s profit margins.
  5. Apple is following market trends instead of creating them. We also see this with the iPhone screen size increase. This is the sort of thing that really affects the perception of people who are going for the fashion statement or status signalling aspects of Apple products. These people will be pained to be seen as followers. Apple better have pico projectors or magic talking screens soon.
  6. [SECOND BIGGEST] Lifetime Sales are lost. If a user buys an iPad, then that user is more likely to buy an iPhone and an iCar and an iTV and an iBrick and a Mac. That user is more likely to buy music and movies from iTunes. That user is more likely to buy iCloud services. One iPad sale lost is not just that lost $200 of profit. It’s the loss of hundreds and hundreds of dollars of lifetime profits from that user.
  7. [THIRD BIGGEST] Loss of Social Proof. Notice an Apple presentation – It’s very focused on Social Proof. Apple takes pains to say – LOOK HOW MANY OTHER PEOPLE BOUGHT THIS. THAT MEANS YOU SHOULD BUY IT TOO. If Apple loses sales then it loses Social Proof. That leaves just things like aesthetics and smoothness and those are FAR LESS POWERFUL.

All these are, however, just icing on the cake. The cake is far more delicious.

The single biggest way in which the three Kindle Fire HDs will hurt the iPad is that they will greatly damage the perception of Apple being ‘untouchable’ and ‘far ahead of the pack’.

Kindle Fire HD shows EVERYONE that Apple has weaknesses and it’s not very far ahead

Nook Color came out at a time when people believed ‘There is only an iPad Market, and no Tablet Market’. B&N was selling 700,000 Nook Colors a month in Holiday Season 2010. It had to hire an EXTRA plane to ship them over.

What did that do?

It showed other people that it was possible to take on Apple. It gave other companies a blueprint. It began to create cracks in Apple’s Great Wall of Perceptions.

Amazon came out with Kindle Fire in Holiday Season 2011 and was supposedly selling 1 million Kindles (of all types) a week. Google came out with Nexus 7 and is supposedly on track to sell 6 million this year.

The Three Kindle Fire HDs will do the same, and on a much more massive scale.

It will give motivation to, and also force, companies like Microsoft and Samsung and Google and B&N to up their game. For a long time people were under the perception that NO ONE ELSE CAN MAKE ANYTHING LIKE THE iPad. And certainly not at comparable prices.

But here they are. A Kindle Fire HD 8.9″ with near Retina screen at $299. How on Earth could this have happened?

Samsung sold 20 million Galaxy SIIIs in the first 100 days of availability. But we were told they were just clone factories.

The Great Wall of Perception is beginning to fall apart.

The success of the Galaxy SIII shows that even the mighty iPhone can be beaten (albeit temporarily). No wonder Apple is running to the courts. It has to try and hide the reality that it is losing the smartphone wars to Android.

It’s the exact same situation with the three Kindle Fire HDs. All Amazon has to do is sell 1 million Kindle Fire HD 4G LTEs and suddenly every technology company will think – Even the main iPad can be taken on.

Once that idea, that belief, is born, then it’s the beginning of the end. Apple’s ‘Perceived’ superiority is far more important than its actual superiority in range of apps and smoothness and aesthetics. That perceived superiority, that Great Wall of Perception, is developing more and more cracks as Samsung and Amazon attack it and show that it doesn’t really exist. It’s all Perception.

Three Kindle Fire HDs are as little of a threat to Apple as the iPod was to Microsoft

People forget that Apple used a stupid music player and white headphones to build the foundation and customer loyalty and Empire of Perception and Aesthetics on which it founded the iPhone and iPad empires.

Can you imagine the conversations in companies like Microsoft when Apple started selling iPods?

They must have thought Apple has gone crazy. That all those years of 5% worldwide market share in the PC market had driven it insane.

It was, however, the foundation. Without the iPods there never could have been an iPhone or an iPad. The halo effect is very real and very powerful.

It’s the EXACT SAME with these three Kindle Fire HDs.

People laughed at Amazon when Kindle came out. A website retailer making devices. Amazon was told it would be lucky to sell 40,000 Kindles lifetime. However, people forgot the years and years of trust customers had in Amazon. People forgot that lots of people love to read and that a device meant just for reading makes as much sense to people who read as a device meant for nothing but checking Facebook and Twitter does to others.

Kindle was a HUGE hit and it (along with Sony eReader and Nook and Kobo) TRANSFORMED the book market and the publishing business.

It’s also given Amazon a platform and a huge customer base of Kindle owners. It can leverage these to jump into other areas. To do inconceivable things like take on Apple.

Seriously. Who would have imagined that B&N would show Apple has a weakness and that Amazon would make the next logical move? Certainly not me.

This is still the learning phase for Amazon. The learning phase for lots of tech companies. Apple has very strong brand loyalty and very good products. Apple links people’s identities to its products better than anyone else. However, people are realizing that those are just competitive advantages and competitive differentiators. That there are dozens of other areas Apple can be beaten on.

The Truth is that companies have almost caught up with Apple on the products front. They are beginning to beat it on the market direction front. They might never be able to catch Apple on the product-user bonding front – but they don’t have to. All they have to do is find other differentiators and focus on those. To compete in areas where they have a competitive advantage. To compete in markets where they have a competitive advantage.

Amazon and B&N are doing that and showing the value of that. Google is finally beginning to get it. Microsoft, depending on what Surface pricing is, might be beginning to get it.

The biggest threat the Kindle Fire HDs pose to iPad and to Apple is that they are showing every other tech company that Apple has weaknesses. That attacking Apple on those fronts is not only a good idea, its the only idea that works. That a large part of Apple’s perceived ‘untouchability’ is just a Great Wall of Perception which doesn’t really exist AT ALL.

Kindle Fire HD isn’t a threat to the iPad. It’s a HUGE threat to everything that makes Apple successful.

4 Responses

  1. What you left out was the very serious impact that the loss of Steve Jobs has on Apple. He was the driving force of all the successes that Apple has had since the introduction of the iPod. He was the visionary, the marketer, the creative genius, and the face of Apple. The next 3-5 years (and that’s being optimistic) for Apple will be on the last momentum of Steve Jobs ideas and visions. After that, I’ll be curious to see what Apple will be like.

    As someone who’s old enough to remember Apple’s stock languishing in the teen’s, talks of either it going out of business or merging with a white knight, and floundering aimlessly after introducing product flops like the Newton, I will not be surprised when Apple falls off its throne in the next few years and it becoming another typical slow growth tech behemoth like Microsoft, Cisco, and HP.

    Jeff Bezos may not come across as a visionary like Steve Jobs but since his founding of Amazon, he has grown it from a strictly bookseller to a purveyor of millions of items and services that has disrupted old and established economic models and industries. It will be interesting to see who will wind up on top. Bezos, the visionary, marketer, and the face of Amazon versus the nuts-and-bolts guy in Tim Cook who is only known for being a supply chain genius for Apple. Will Cook become the next John Scully for Apple? We’ll see.

    • Very good point Andrew.

      1) Totally agree with you that in 3 to 5 years the pipeline of products Steve Jobs had built up will be gone and Apple will need someone to provide vision.

      2) Also agree with you that Apple will turn into a low growth (but giant) corporation.

      The problem is that all the people in high up positions were all suited to be around someone like Steve Jobs (the driving force). It would be really unlikely that one of them can replace Steve Jobs.
      And due to the serious amount of profits Apple is making the Board will never take risks and would rather stick with a proven choice.

      So not really any path to bring in someone like Gates or Jobs or Bezos to drive the company.

      • I have never owned an I Pad or iPhone or anything from Amazon so I was reading this article hopeing to learn which unit offered the most value for the $. but the comparison seems to be between the companys not the units themselves. I think I like the idea of the smaller size. The i Pad mini sounds intresting if it has the capability.

      • Russ, this post was meant more as a long term strategic thing i.e. whether the device affects the companies.

        If you like the smaller size I’d recommend waiting for Nook Tablet 2 and iPad Mini to be available. Google Nexus 7 is also a very good choice. iPad Mini will be the safest choice due to strong ecosystem of apps.

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