Kindle Fire Creating ‘Chaos,’ New Android Tablet Buyer, IHS Says
After its first 2 weeks on the market, Amazon’s Kindle Fire is on track to outsell all tablets except the iPad this quarter, according to forecasts from IHS iSuppli. Amazon is expected to ship 3.9 million Kindle Fires in Q4, giving the company a 13.8 percent share of the global tablet market for the quarter, behind Apple with 65.6 percent, and ahead of Samsung with 4.8 percent and Barnes & Noble at 4.7 percent, IHS said. “At a rock bottom price of $199 -- which is less than the $201.70 it now costs to make the device -- the Kindle Fire has created chaos in the Android tablet market,” said Rhoda Alexander, senior manager, tablet and monitor research at IHS.
"Most other Android tablet makers must earn a profit based on hardware sales alone,” Alexander said, but Amazon plans to use the Fire “to drive sales of physical goods that comprise the majority of the company’s business.” As long as the strategy is successful, the company can afford to take a loss on the hardware “while its Android competitors cannot,” she said.
The Fire’s speedy rise will spark growth of the entire market, and as a result IHS has raised its total tablet shipment forecast for 2011 by 7.7 percent to 64.7 million units, it said. Total shipment projections represent 273 percent growth from 17.4 million units in 2010, it said.
Two years after Apple launched the iPad “a competitor has finally developed an alternative which looks like it might have enough of Apple’s secret sauce to succeed,” Alexander said. The initial response to the Fire suggests Amazon has found the right combination of “savvy pricing, astute marketing, accessible content and an appropriate business model” for an emerging new group of tablet buyers, she said.
"Amazon is betting big on the product,” said Alexander, who told us that suppliers are reporting a steady increase in their orders for panels, touchscreens and finished devices. The IHS internal projection for Q4 2011 production is approximately 5 million units, “and our sources indicate Amazon will be introducing a larger screen version of the Fire in February or March of 2012,” she said. That unit will reportedly be 8.9-inches, she said. Amazon didn’t comment by our deadline.
In addition to raising 2011 forecasts, Alexander has boosted projections for the next few years, with a new forecast of 287.2 million tablets shipping in 2015, up from 275.3 million. Kindle Fire will account for much of the growth in sales, she said, and “dramatically reduced” pricing in general in the non-Apple segment of the tablet market will drive sales as well, she said. “The Kindle Fire has set a new bar for pricing,” bringing the tablet within reach of a larger portion of the consumer market, she said.
Amazon will make back the hardware loss on media, Alexander noted, as “millions of Kindle owners will be accessing digital content” from the Amazon.com site to play on their tablets. Furthermore, in a one-stop-shop scenario where Amazon is “playing the long game and developing a business model that looks beyond the device,” the e-tailer hopes to sell them “all kinds of other goods,” from shoes to diapers, she said. Amazon has already taken several steps to promote the strategy, Alexander said, including offering Kindle Fire buyers a free, one-month membership to Amazon Prime, which offers buyers free access to movies and TV shows and the Kindle e-book lending library, she said. Amazon Prime also includes free two-day shipping of millions of items on the company’s site, which encourages sales of physical goods at Amazon, she said. Alexander also cited Amazon Santa, a free tablet app the company announced last week that allows users to create Christmas wish lists of products sold on the website.
Commenting on industry speculation that Apple will respond to Amazon’s aggressive pricing move with a lower cost version of the iPad, Alexander said a more likely scenario is that Apple will cut pricing on the iPad 2 when it releases the iPad 3. “This will provide a value alternative for entry-level users in the same way that the company continued to offer the iPhone 3 when it rolled out the iPhone 4,” she said. Such a strategy would allow Apple to maintain target profit margins on both the iPad 3 and the iPad 2, “while offering end-users an ever-expanding family of products,” she said. Apple didn’t comment by our deadline.