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Sunday, October 2, 2011

Fire Follow up

It looks like Amazon is pushing even harder on price than originally anticipated. The new Fire is selling for $199, apparently even below the cost of its manufacturing. It is selling as a loss leader. As I have said in previous posts, this makes good sense. Amazon will gain market share with its aggressive pricing and will make money selling media to its customers. This is the strategy I have been advocating. Amazon is well poised to take advantage of it.

As others have pointed out, the Fire is not really an iPad Killer. While the iPad is much more expensive, it offers a lot more than the Fire ever will. Still, the Fire will appeal to a large market segment. Further, it force other Android makers to reduce their prices as well, thus leaving iPad remaining only for those willing to pay a premium price.

There are also rumors that Amazon may be interested in buying Palm from HP, presumably to use WebOS on its devices. This makes little sense to me. First, Amazon has already developed a highly customized version of Android. Forcing early adopters to change to a new OS will only cause problems. Second, Android has become a popular OS. Moving to WebOS would prevent customers from having access to any significant third party Apps.

If Amazon does move to a WebOS platform, it will incur not only the purchase cost but the cost of developing the OS to its own device. Further, customers will be turned off by the lack of third party apps available. Amazon would be moving more toward the Apple model of trying to maintain complete control over its device. That is not something customers want.

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