Kindle Fire HD Strategy vs iPad is too focused on where the puck is

Here are two quotes from Wayne Gretzky that are cliché-overload. However, they describe Amazon’s Kindle Fire HD strategy perfectly (in reverse) –

  1. “I skate to where the puck is going to be, not where it has been.”
  2. “A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.”

These describe PERFECTLY what’s wrong, fundamentally, with Amazon’s Kindle Fire HD strategy. It’s too focused on what it should do to compete with the existing leader in a space AS THE LEADER IS RIGHT NOW.

Kindle Fire was too focused on Nook Color. Kindle Fire HD was too focused on being a mini-iPad, and never anticipated iPad Mini. Kindle Fire HD 2 looks like it’s too focused on iPad Mini, and might be unprepared for what Apple has in the works for Fall 2013.

The problem is that it’s a 9 to 12 month product cycle. If you keep targeting the current competitor models, you keep getting devices that are a year old by the time they ship. In one year, everything moves. If you don’t innovate and lead, then you are forever playing catch-up.

Is Kindle Fire HD 2 really going to be a year old when it arrives?

Let’s consider what writers are saying about the rumored new Kindle Fire HD 2 and Kindle Fire HD 8.9″ –

  1. Amazon Working To Bring Back Flash On Kindle Fire Tablets – Uber Gizmo
  2. Next Kindle Fire HD could rival the retina iPad in resolution – Ars technical.

Notice what Amazon is doing here. It’s targeting the iPad based on where the iPad currently is.

This Fall we’re going to see one or more of –

  1. iPad Mini getting retina resolution. That would blow away the Kindle Fire HD’s screen resolution advantage. Then the iPad Mini’s advantages like usability, larger app store, better build, and branding would kick in.
  2. iPad gets some big, new feature or a super high-resolution screen. That would make Kindle Fire HD 8.9″ 2’s jump in screen resolution pointless.
  3. [Perhaps] iWatch. This would add to the iPad/iPad Mini value proposition by providing a cool, new accessory that links with iPads

What will Amazon have, if the current rumors about Kindle Fire HD 2 are true?

It will have a Kindle Fire HD 2 that beats the first generation iPad Mini and a Kindle Fire HD 8.9″ 2 that ties with the iPad Retina Display.

Which is skating to where the puck is.

Amazon just doesn’t believe in innovating fast

Don’t know what’s wrong with Amazon’s strategy engine. It seems to be capable of only incremental evolution.

It’s almost as if Amazon thinks –

  1. How can we make something that is marginally better than the current leader?
  2. How can we then use low pricing and/or our advantages to beat it?
  3. A huge jump? No, let someone else take the risk.

Why not get out of the Incremental Overload box and try some real jumps and some real innovation?

Kindle Fire taking over the niche created by Nook Color was perhaps inevitable once you consider the cold hard facts –

  1. Amazon spent $240 million+ on advertising last year. There’s no way B&N can compete with that. My guess would be that B&N spent perhaps $20 to $50 million.
  2. Amazon has a much richer content ecosystem. It can offer things like movies and music. B&N only recently added movies.
  3. A lot more people shop online at Amazon.com. All those frontpage ads Amazon was using. They must be another $50 million or more of marketing.

Of course, the wrinkle was that iPad Mini arrived and took the #1 spot in the small tablet niche. Kindle Fire still did very well and got #2. The combination of iPad Mini’s success and Kindle Fire’s success destroyed the Nook HD and Nook HD+.

Now iPad Mini 2 and iPad Retina are slated to arrive. Amazon, instead of thinking about competing with them, is competing with the current iPad Mini and the current iPad.

Pretty sure Amazon hasn’t anticipated the impact of small Windows 8 Tablets either.

I think it’s a very fine distinction –

  1. Good companies start building a product that would be #1 in the market as it exists today.
  2. Great companies start building a product that will be #1 in the market that would have evolved and become something else when the product actually launches.
  3. The absolute best companies focus on and build a product that will change the market itself. So that all existing competitors are left adrift.

Exactly what Wayne Gretzky said – Great players skate to where the puck is going to be.

The distinction is very fine because it’s easy to get trapped into thinking that everyone else will be trapped in the TODAY’s MARKET mindset. Things change quickly once one or more companies start thinking about how to shift the entire market.

Where is the puck going to be in Tablets in 2 years?

I don’t know. However, we can take some educated guesses –

  1. Wearable computing replaces Tablets as the Hot New Market.
  2. 7″ Tablets with Projection Screens become the hot new thing.
  3. The current market stays as it is.
  4. The current market evolves incrementally and steadily.
  5. There’s a huge new shift in Tablets with some new screen technology like 3D screens.
  6. Phablets take over the Tablet Space.
  7. Something else entirely.

Which of these is the least likely? 3. The chances of the current market staying as it is, are ZERO.

Yet, that’s what Amazon is strategizing for. It’s improving the screen resolution and weight of its tablets. To the point that they beat the 2012 Tablets. But it won’t be competing with the 2012 Tablets. It has to take on the Fall 2013 Tablets.

In 2007, iPhone came out. Up to 2010, Blackberry was selling more than iPhone. It’s in the last 3 years that Blackberry’s mistakes from 2007 onwards have become evident. It keeps trying to fight the iPhone from 2-3 years back. Amazon is falling into a similar trap – skating to where the puck is and then finding that, on reaching the spot, the puck is gone.

Contrast that with what Apple did. It went into mp3 players to start creating a loyal customer base. Then Phones once it became clear to anyone reading the tea leaves that a big shift to mobile computing was happening. Then Tablets. Now it’s probably going to take a shot at Wearable Computing. It’s trying to anticipate where the next BIG market shift is going to be.

When it goes into a market, it doesn’t go in trying to match or incrementally improve on the existing devices. iPhone shocked existing smart phone makers because of how large the screen was. iPhone was basically a battery strapped to a screen with some components added in. It was also a complete shift to touch screens.

It was anti-incremental improvement. Because you can’t displace entrenched giants via incremental improvements. Remember, they are incrementally improving too. If they have the lead and both you and them keep improving incrementally, you’ll never catch-up.

Contrast Amazon’s strategy with what Samsung did. Samsung started spending $4 billion a year on marketing. It hit Apple right where it hurt – the Perception Wars (why do you think Apple is hiring the YSL CEO, it sure ain’t for his knowledge of semiconductors). That’s why Samsung took over global smartphone sales and dominates amongst Android Phones. Samsung’s huge victory was to understand the importance of huge marketing and partnerships with lots of carriers and a vast distribution network and to go all-out. It wasn’t incremental in any sense of the word. It took big risks and that’s why it’s making $8.2 billion in profits a quarter (approximately 210 times Amazon’s 2012 profits, except Amazon’s 2012 profits had a negative sign in front of them).

Amazon is trying incremental improvements when its competitors, including Apple and Samsung and Microsoft, are taking much bolder bets. Yes, there’s a 10% chance that an incremental, cheap device that slightly improves on the existing competition will win the Tablet Wars. However, the 90% chance is that the victor will be the company that skates to where the puck is going to be. With all due respect, that’s how it should be. You want the winner to be the person who invented fire, not the one who ran away screaming to his cave at the first spark.

Kindle Fire HD 2 to feature higher resolution, lower weight?

There are rumors that Amazon is planning an overhaul of its entire Kindle Fire line. It is rumored to be releasing a new Kindle Fire HD 2 with much higher screen resolution and lower weight.

Kindle Fire HD 2 rumors

  1. Kindle Fire HD 2 will feature a 1,920 by 1,200 pixel resolution. This is quite an improvement over the Kindle Fire HD’s 1,280 by 800 pixel screen.
  2. Kindle Fire HD 2 will remain a 7″ tablet.
  3. Amazon is working hard to price Kindle Fire HD 2 at the same price point as the Kindle Fire HD.
  4. Kindle Fire HD 2 will be lighter. This will be a big improvement since the current Kindle Fire HD is too bulky and weighs too much. Hopefully, lighter weight also means more compact size.
  5. Kindle Fire HD 2 will feature a new chiselled design.
  6. Kindle Fire HD 2 will have buttons that are no longer on the side and don’t accidentally get pressed (what a relief).
  7. Kindle Fire HD 2 will launch with the Kindle Fire 3 (details below) and Kindle Fire HD 8.9″ 2 (details below) in approximately September 2013.

If these rumors are true, and there is no other major addition, then it’s a gradual evolution of the Kindle Fire HD. I don’t see how Amazon expects to win the Tablet Wars with this.

Kindle Fire rumors

  1. Kindle Fire 3 (the 3rd generation of the base Kindle Fire) will feature a higher resolution of 1,280 by 800 pixels (same as currently found on Kindle Fire HD).
  2. Kindle Fire 3 will have the same screen size (7″) but will be lighter.
  3. Kindle Fire 3 will launch ahead of the holiday shopping season, approximately one year after the launch of the Kindle Fire 2.

Here too, I don’t see how a gradual evolution from Kindle Fire 2 to Kindle Fire 3 will help Amazon stay competitive in the Tablet Market. Amazon will aim to keep prices the same as the current Kindle Fire 2 price. However, that price is already undercut by the Nook HD (which is on permanent fire sale, it seems). Also, Google is probably going to drop the price of the Nexus 7, after Nexus 7 2 comes out, which makes things even more competitive.

Kindle Fire HD 8.9″ rumors

  1. Kindle Fire HD 8.9″ 2 will feature a 2,560 by 1,600 pixels resolution, better than the iPad Retina Display’s 2,048 by 1,536.
  2. Kindle Fire HD 8.9″ 2 will have the same 8.9″ screen size but will be lighter.
  3. Amazon will try to release Kindle Fire HD 8.9″ 2 at the same price as the current Kindle Fire HD 8.9″.

Kindle Fire HD 8.9″ is the weakest of Amazon’s offerings and unless Amazon adds more than a screen resolution increase, Kindle Fire HD 8.9″ 2 might be the last Kindle Fire HD 8.9″ Amazon makes.

Credits:

  1. Boy Genius Report on Kindle Fire HD 2 rumors.
  2. Techmeme.

Thoughts on the Kindle Fire HD 2 rumors

Meh.

If the only improvements are –

  1. Higher Screen Resolution. This is definitely a big improvement, but can’t carry Kindle Fire HD 2 all by itself.
  2. Lighter Weight. A good improvement, but Kindle Fire HD was already behind on weight and size.
  3. New Chiselled Shape.
  4. Better Button Placement.
  5. Keeping the price the same (let’s be generous here).

Then it’s more of a Kindle Fire HD 1.5. It’d be typical Amazon. It would also mean a high chance that like the third-generation Nook Tablets, the third generation Kindle Fire Tablets would be the ones that get knocked out of the fight.

  1. Apple is going to release a Retina iPad Mini, and perhaps drop the price of the iPad Mini 1.
  2. Google is going to release a Nexus 7 2 that is rumored to focus on improved screen resolution. However, it comes with the Google Play App Store and 700,000+ Apps (Note: Only a small fraction of these, perhaps 30,000 to 50,000, are optimized for Tablets). That gives the Nexus tablets a much larger number of Apps than Kindle Fire HD.
  3. Samsung and other companies are going to release Windows 8 Tablets in 8″ and other smaller screen sizes.
  4. Lots of Android Tablets are going to be released.
  5. We always have the possibility of a company like Dell or HP or Asus figuring things out and releasing a hit Tablet.

Between Apple and Android Tablets and Windows 8 Tablets, Amazon might get crushed if it doesn’t bring something very high quality, or something very innovative and new, to the market. These Kindle Fire HD 2 rumors are not yet promising that. Hopefully these Kindle Fire HD 2 rumors are a controlled leak by Amazon and reveal only a partial picture. If not, then even Amazon’s $240 million+ marketing budget will have a hard time keeping it in the Tablet Wars.

Kindle Fire HD price cuts – Why is Amazon dropping Kindle Fire HD prices?

Amazon has dropped the price of the Kindle Fire HD.

  1. In the US, the Kindle Fire HD is down to $169. This is still nowhere near the $129 of the Nook HD. However, it’s a good price.
  2. In the UK and Europe, Kindle Fire HD is down to 139 pounds. This is again nowhere near the 99 pound price of the Nook HD (just reduced recently).

We’ve basically had the following happen –

  1. B&N dropped the price of the Nook HD to $129 permanently.
  2. Amazon, a few weeks later, dropped the price of the Kindle Fire HD to $169.
  3. B&N dropped the price of the Nook HD to 99 pounds in UK. B&N also dropped the price of the Nook HD+ to 149 pounds in the UK.
  4. Amazon, almost immediately, dropped the price of the Kindle Fire HD to 139 pounds in UK and Europe.

GigaOm was the first to report the price drops on Kindle Fire HD and Nook HD in UK. The Digital Reader was the first to report the price drop on the Kindle Fire HD in the US.

Here is a snippet from B&N’s Press Release announcing the price drop on the Nook HD and the Nook HD+ in the UK –

… to promote literacy across the UK, the award-winning NOOK HD and NOOK HD+ tablets will be available at new low prices. For a limited time only, the 7-inch NOOK HD will start at just £99 (8GB) and £129 (16GB), while the 9-inch NOOK HD+ tablet is available starting at £149 (16GB) and £179 (32GB), both online at NOOK.co.uk and at leading retailers across the UK.

It’s certainly interesting that B&N claims it dropped the prices to ‘promote literary across the UK’. That’s just taking the mick.

Why is Amazon dropping Kindle Fire HD prices?

Initially, for the first few weeks after B&N dropped the price of the Nook HD to $129 in the US, Amazon did nothing. It kept the Kindle Fire HD at $199.

Which seemed strange. Isn’t Amazon the home of ‘We’re cheaper than everyone else, even that reality show TV star’?

What Amazon did do recently, and it seemed a good sign, was to expand Kindle Fire HD availability worldwide. At the time I’d assumed that it meant Kindle Fire HD was doing very well. However, now it’s making moves that don’t make sense.

If Kindle Fire HD is selling well, and Amazon is able to expand internationally, why drop the price in the US suddenly?

Again, if Kindle Fire HD is selling well, why drop prices in the UK suddenly?

Amazon’s recent moves suggest there are actually multiple possible scenarios –

  1. Best Case Scenario for Amazon: Kindle Fire HD was selling really well, even after Nook HD was priced at $129. Kindle Fire HD was doing so well Amazon decided to expand it world wide. After worldwide expansion, economies of scale kicked in, and Amazon is now able to price Kindle Fire HD at $169.
  2. Worst Case Scenario for Amazon: Kindle Fire HD was not selling very well. After Nook HD was priced at $129 sales dipped even more. Amazon decided to try and sell it worldwide, to clear out stock it feared it would get stuck with. That didn’t work. Amazon is now trying to sell it at $169. Note: Amazon has tried this ‘world wide sales’ trick before, with Kindle and Kindle DX.

The truth is perhaps somewhere in the middle. However, the timing of Amazon’s Kindle Fire HD price-cut suggests that it might be closer to the Worst Case Scenario than to the Best Case Scenario.

Could Kindle Fire HD follow Nook HD and exit the Tablet Market?

This really is an unthinkable scenario. Amazon’s future depends on device sales to a large extent. However, there are some questions worth asking –

  1. If the Kindle Fire division were considered a separate division, would it be profitable or not?
  2. If the Kindle Fire division is taking losses, for how long can it keep taking losses?
  3. Amazon in the Tablet Market for the long-term. It doesn’t really have a choice – it has to sell Tablets to not be at the mercy of Google and Apple for digital content sales. However, what amount of losses can it take? For how many years?

Let’s think about what happened with Nook –

  1. Year 1: Nook Color did very well.
  2. Year 2: Nook Tablet did decently well.
  3. Year 3: Nook HD and Nook HD+ got hammered by the deadly combination of iPad Mini and Kindle Fire HD.

Let’s consider what has happened with Kindle Fire –

  1. Year 1: Kindle Fire did well.
  2. Year 2 start: Kindle Fire HD did well.
  3. Year 2 soon after start: iPad Mini happened.
  4. Year 3: The story is still unwritten.

So, how exactly did iPad Mini affect Kindle Fire HD sales? How is iPad Mini affecting Kindle Fire HD sales now?

Kindle Fire HD 2 might determine whether Amazon survives in the Tablet Market or not

We get three broad scenarios –

  1. Kindle Fire HD 2 is a big hit and strengthens Amazon. Amazon actually becomes the #2 Tablet maker (a spot currently owned by Samsung).
  2. Kindle Fire HD 2 keeps the current status quo i.e. Kindle Fire HD doing decently, but a distant 3rd behind iPad Mini (+iPad) and Samsung.
  3. Kindle Fire HD 2 does poorly. It falls further behind. Amazon’s Kindle Fire HD related losses go up.

What would Amazon do if the third scenario happens? Would it keep investing in a loss-making Tablet division? Would it consider Kindle Fire HD essential for its future and keep taking losses?

OR Would Amazon walk away from the Tablet Market?

Perhaps the most important question is – How long can Amazon take losses on Kindle Fire HD, if (and it’s a big if) it starts taking losses on Kindle Fire HD and/or Kindle Fire HD 2?

Further Kindle Fire HD price-cuts will be a sign that Kindle Fire HD 2 is imminent and/or Kindle Fire HD is selling poorly

This is the first price-cut on the Kindle Fire HD. It could be a lot of things – clearing out stock for Kindle Fire HD 2, slowing sales due to iPad Mini doing better, slowing sales due to the Nook HD Fire Sale, economies of scale.

If there are more price cuts, then only two possibilities remain –

  • Kindle Fire HD is not selling well.
  • Kindle Fire HD 2 is around the corner and Kindle Fire HD stock needs to be cleared out.

If there is a further price-cut within the next 2 to 3 months, and there isn’t a new Kindle Fire HD 2 to explain it, then it would be a very bad sign for the future of the Kindle Fire HD.