September 30, 2011 7:01 pm

Amazon breathes Fire into tablet market

The history of personal technology, like biological evolution, is littered with failed species. Often, higher lifeforms succumb to attack from below, as better-adapted creatures take advantage of changing conditions to grab a foothold on the evolutionary ladder.

Such a moment may have come this week when Jeff Bezos, chief executive of Amazon, held aloft his company’s Kindle Fire tablet.

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The device, which will go on sale in November and be available only in the US, looks unprepossessing as a piece of hardware. But if the early, excited reaction in tech circles is any guide, it may already have secured itself a new corner in the personal computing world – with potentially sweeping effects on the wider personal tech and media industries.

With a screen measuring seven inches diagonally – giving it only half the surface area of Apple’s iPad – and no camera or ability to connect to high-speed 3G networks, Amazon’s entry into the crowded tablet market will not arouse the techno-lust of the average gadget geek.

This is not a device, though, that is designed to sell itself on its technological innards – or what, in tech circles, are called the “feeds and speeds”. Instead, the Fire is a window into a world of digital content.

“It’s a full-on PC that won’t behave at all like a computer,” says Mark Anderson, a US technology commentator.

Personal computing has already been going through an extended evolutionary spasm. Apple’s iPhone, the fifth version of which is due to be unveiled on Tuesday, has led to a generation of pocket-sized, touchscreen devices that have quickly become all-purpose life aids. Mobile phones, digital cameras, GPS location devices – any number of separate functions have already been sucked into the smartphone.

With many device makers now looking at including mobile payments – something Apple has itself studied, though it is not yet clear whether this will be featured in its next handset – the wallet may be next to go.

The more recent iPad, on sale for less than 18 months, is now threatening to disrupt the market for larger screens, ranging from PCs to electronic book readers. Yet, while in the smartphone market other handset makers have largely copied Apple’s lead, Amazon has decided that tablets are due for another evolutionary branch.

In doing so, it has copied one of the most famous strategies in business history: the idea, pioneered by safety razor inventor King Gillette more than a century ago, that a company can sell one product at – or even below – cost to secure customers for more profitable products or services for which it can make repeat sales.

In Amazon’s case, that means slashing the price of its tablet to just $199 – far below the $499 price tag on the cheapest iPad. At that price it will make little or no money, even on devices it sells directly from its own website, according to Wall Street analysts. But from digital books to its music and film services to its online retail store, Amazon has plenty of ways to make its users pay.

“The primary concern for Amazon is to support its ecosystem and sell more content,” says Carolina Milanesi, an analyst at Gartner. “This is what the Kindle Fire was created to do: be a good platform for content consumption.”

Rather than present its users with the familiar “desktop” screen of icons for a range of apps, the Amazon Fire will display its access to digital content prominently on its home screen. And much of that content will come from Amazon.

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Others put the company’s ambition more starkly. “The idea is to kill Netflix,” says Mr Anderson – echoing a widely held view that the dominant streaming film service in the US is one of the companies most threatened by this integration of hardware and content. With Amazon pushing aggressively into other digital media services, the impact of tight vertical integration with content could also be felt more widely.

In this regard, Amazon is playing to its own strengths. Besides running the largest online store, it has become a leader in the digital delivery of media and other content from its own servers.

Also, thanks to its early move into the “cloud computing” market, building the data centre capacity that other companies use to reach their users online, it has an unrivalled digital infrastructure to reach consumers. By bringing this back-end technology to bear in making its delivery of online content more efficient – for instance, with a new browser called Silk – Amazon has been able to draw at least some enthusiastic reviews from the tech geeks this week.

There are some obvious potential pitfalls in the Amazon approach. One is that, by stripping down its hardware to keep costs as low as possible, it will fail to excite consumers whose view of tablets has been conditioned by the iPad.

“A company that loses money on every hardware unit has the wrong incentives, it cannot keep pace technologically with a general-purpose device,” says one big Silicon Valley investor. But with a radically different price point, analysts such as Sarah Rotman Epps at Forrester say that Amazon is set to expand the tablet category, not compete directly with the iPad.

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