Red-Hot Kindle Fire Blazes Way to Second Place in Media Tablet Market – IHS iSuppli

Market analyst firm IHS iSuppli’s Rhoda Alexander reports that just two weeks after its introduction, Amazons Kindle Fire is already shaking up the market, with the device expected to surpass all other iPad rivals to take second place in the global media tablet business in the fourth quarter.

Coming up from zero in the third quarter, Amazon will ship 3.9 million Kindle Fire tablets during the last three months of 2011, according to a preliminary projection from the IHS iSuppli Display Materials & Systems Service from information and analysis provider IHS. This will give the company a 13.8 percent share of global media tablet shipments in the fourth quarter, exceeding the 4.8 percent held by No. 3 Samsung, and second only to Apple’s commanding 65.6 percent portion of the market, as presented in the table below.

The Kindle Fire’s rapid ascent will help fuel the expansion of the entire market, with the additional shipments contributing to a 7.7 percent increase in the IHS forecast of total media tablet shipments in 2011.

“Nearly two years after Apple Inc. rolled out the iPad, a competitor has finally developed an alternative which looks like it might have enough of Apples secret sauce to succeed,” says Ms. Alexander, senior manager, tablet and monitor research for IHS. “Initial market response strongly suggests that Amazon, with the Kindle Fire, has found the right combination of savvy pricing, astute marketing, accessible content and an appropriate business model, positioning the Kindle Fire to appeal to a brand-new set of media tablet buyers. The production plans make it clear that Amazon is betting big on the product.”

Amazon Lights a Fire in Tablet Market

IHS now predicts global media tablet market shipments will amount to 64.7 million units in 2011, compared to the previous forecast issued in August of 60 million. The total shipment level represents 273 percent growth from 17.4 million units in 2010.

The forecast for the following years also has been increased, with shipments expected to rise to 287.2 million in 2015, up from the previous forecast of 275.3 million, as shown in the figure below.

Sales of the Kindle Fire alone will account for much of the growth in sales, iSuppli predicts. Dramatically reduced pricing in general in the non-Apple portion of the media tablet market also will play a role in expanding sales.

The Kindle Fire has set a new bar for pricing, bringing the media tablet within reach of a larger portion of the buying public.

“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,” Alexander says. “Most other Android tablet makers must earn a profit based on hardware sales alone. In contrast, Amazon plans to use the Kindle Fire to drive sales of physical goods that comprise the majority of the companys business. As long as this strategy is successful, the company can afford to take a loss on the hardwarewhile its Android competitors cannot.”

Amazon’s Retail Strategy

Millions of Kindle owners will be accessing digital content from the Amazon.com site to play on their tablets. Once these users are on the site, Amazon hopes to sell them all kinds of other goods, ranging from shoes to diapers.

Amazon has taken several steps to promote this strategy. Because of this, the company is willing to take a loss on the Kindle Fire hardware – giving it a market leading price point because it is playing the long game and developing a business model that looks beyond the device

For example, with each purchase of a Kindle Fire, buyers get a free one-month membership to the Amazon Prime service. In addition to offering free access to movies and TV shows and it allows consumers to use the Kindle ebook lending library, Amazon Prime includes free two-day shipping of millions of items on the company’s site, promoting sales of physical goods on Amazon.com.

In another example, Amazon this week announced Amazon Santa, a free tablet app that allows users to create Christmas wish lists of items sold on the Amazon.com site.

Meanwhile, Amazon is bringing to bear its considerable marketing muscle to promote sales of the Kindle Fire.

Apple Strikes Back?

While Apple remains dominant in the media tablet market, speculation is rife that the company will respond to the Kindle Fire’s aggressive pricing with a lower-cost version of the iPad.

A far more likely scenario is that Apple also may reduce the pricing on the iPad 2 when the company introduces 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. This approach would allow Apple to maintain its target profit margins on both the iPad 3 and the iPad 2, while offering end-users an ever-expanding family of products.

Read “New Android Entrants Face Strong iPad 2 Sales in Q2 2011” here:
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Zittrain vs. Apple: What About the User Experience?

Tech.pinions’ Steve Wildstrom comments that Harvard Law School Prof. Jonathan Zittrain doesn’t like the iPhone or the iPad, or much of anything about the modern app economy, noting that in an article for MIT’s Technology Review, Zittrain bemoans the loss of a golden age of software openness, when anyone could write and run software for an operating system, and up popped an endless assortment of spreadsheets, word processors, instant messengers, Web browsers, email, and games, and that in the dystopian future Zittrain sees, an unprecedented shift of power from end users and software developers on the one hand, to operating system vendors on the other means the Apples, Googles, and Microsofts of the world will control what you can do with your PCs, phones, and tablets and we’ll all be the worse for it.

However, while Wildstrom acknowledges that Prof. Zittrain is a very smart and witty guy, he thinks the professor is missing something very important – user experience, which Wildsrtom characterizes as “horrible” back in Zittrain’s glory days of computing freedom, observing that the many millions of people who have bought iPhones and iPads have chosen to cede to Apple the right to to choose what software their devices can run in exchange for a superior user experience.

That’s obviously what’s happening, although some of us would dispute that the user experience in the iOS/iCloud walled garden is in fact qualitatively better, at least for content producers and other power users.

For the full commentary visit here:
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