September 28, 2011 3:16 pm

Amazon makes $199 challenge to iPad

Amazon has launched a head-on challenge to the dominance of Apple’s iPad with a low-price tablet computer, in a move set to intensify competition over the way people consume digital books, music and video.

Jeff Bezos, Amazon’s founder and chief executive, said the Kindle Fire tablet would sell for $199 – half the price of an iPad – when it goes on sale in the US from November 15.

Amazon’s move will sharpen competition between Mr Bezos, a seasoned technology entrepreneur, and Apple, whose founder Steve Jobs retired last month, as their businesses converge on digital media sales and distribution.

The Fire’s 7-inch colour touchscreen is smaller than the 9.5-inch iPad 2. The Amazon device, which shares the Kindle brand name with the group’s four-year-old e-reader, has a wifi connection and is powered by Google’s Android software.

It gives US consumers a choice between two elaborate – and largely incompatible – digital “ecosystems” where they can read e-books, stream video and listen to music. The two companies also have markedly different strategies. While analysts say Amazon is willing to treat hardware as a loss-leader – in order to sell more media – Apple has historically made higher margins on its hardware and treated media as an adjunct.

“Amazon’s key advantage is that they’re leading with services,” said Sarah Rotman Epps, analyst at Forrester Research. “This is a device to encourage the use of Amazon services, but it’s also a platform for third party apps.”

Mark Mahaney, analyst at Citigroup, noted that between 30 and 40 per cent of Amazon’s business is media such as books and music, which are rapidly being digitised. “They need to hedge themselves against that structural change,” he said. “The Fire helps to do that by giving them more control over distribution.”

The US launch date is timed for Thanksgiving and the end-of-year holiday shopping season. Amazon would not say when it would launch the device in other markets.

The Fire combines Amazon’s Instant Video service, its Cloud Player for music and its Kindle e-book software on one platform, Mr Bezos said, as he pulled up an X-Men movie, Adele’s album 21, and a copy of Kazuo Ishiguro’s Remains of the Day at the launch event.

Ms Rotman Epps said Amazon would struggle to match Apple’s sales reach outside the US and that the Fire was unlikely to meet the needs of business customers.

“You’re not going to see GE and Mercedes Benz deploying these,” she said.

Mr Mahaney predicted “multi-million unit sales” but said the $199 price tag, which was more aggressive than he had expected, would squeeze profit margins.

“This is pretty consistent with Amazon’s approach. They’ve always been willing to run the business on a loss leader,” he said.

In an unexpected move Mr Bezos also revealed that Fire would use a new high-speed web browser called Silk, which splits its operations between the device itself and the cloud computing power of Amazon’s web services division.

Amazon’s share price jumped 4.4 per cent after the announcement as the New York market slipped 0.4 per cent. Shares in Barnes & Noble, the book store whose Nook ereader competes with the Kindle, plunged 12.6 per cent.

Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

NEWS BY EMAIL

Sign up for email briefings to stay up to date on topics you are interested in

SHARE THIS QUOTE