Kindle Fire Marketing Strategy: Amazon’s Big Bet

November 12, 2011 by

Kindle Fire 7 Inch Tablet

Image provided by: androidtweets.com

On Tuesday, the Kindle Fire will hit store shelves and became available for purchase online. Already, many are saying the tablet will give the iPad 2 a run for its money and perhaps break tablet sales records. (when the Fire became available for pre-order back in October, MSNBC reported that Amazon was selling 50,000 of the tablets per day, more than the iPad and iPad 2 over the same sales period)
Dissimilar from previous tablet market entrants (HP, Motorola, Samsung, Research in Motion, Acer, Dell), Amazon’s Kindle Fire marketing strategy focuses on price as opposed to performance and/or functionality. In fact, the Kindle Fire is actually designed to be a multimedia consumption device as opposed to a multimedia creation and consumption device like its predecessors. The Kindle Fire does not have a webcam, large storage options, or mobile network connection capacity, but it is considerably less expensive than its peer products at $199 per a unit and is positioned as a handheld multimedia consumption device for the masses. Despite having limited computing and memory resources built into the device relative to its peer products, the Kindle Fire leverages processing resources and cache storage capacity in the Amazon EC2 Cloud to power part of its new Silk browser functionality and enable the system to reach higher performance levels when streaming content.

What is so intriguing about the Kindle Fire marketing strategy?

What’s intriguing is that Amazon is not actually aiming to profit from tablet device sales (at least early-on); rather, it is using the Kindle Fire as a means to develop a new sales channel for its e-commerce business and platform to facilitate the growth and dominance of its content and cloud computing services. Amazon is selling the Kindle Fire at an estimated $10 to $20 loss per a unit to encourage tablet adoption by the less affluent segments of the population, as they believe this will increase their content consumption and encourage more online purchasing and drive demand for their Prime services and e-commerce business.  Amazon is betting that pre-loading their content service apps on the device and optimizing the device for Amazon’s e-commerce business and multimedia services will increase its market share among users in these categories and offset the cost of subsidizing the Kindle Fire sales.

Rather than restrict the Kindle Fire to only Amazon services, Amazon decided to open its own app store that will offer competitor content services like Pandora and Netflix with the hope that it will encourage more wide-spread adoption of its device. However, Amazon is taking the Apple approach to its app store and requiring all applications to go through a rigorous review process before they are approved for distribution on the Amazon App Market.

If Jeff Bezos and Amazon’s senior management team are correct (which early anecdotal evidence would suggest), the Kindle Fire marketing strategy could be a huge success. However, if they are, in the long run, wrong in this bet, then Amazon’s margins could suffer from this bet for several years to come.

If you are interested in reading more about the Kindle Fire, I recommend reading IDC’s article on how the Kindle Fire could shake up the tablet market. Similarly, if you are interested in reading more about other tech company marketing strategies, I also recommend reading my colleague Tien Anh Nguyen’s blog post on Apple’s Marketing Strategy.

  • http://twitter.com/10basetom Tom

    Small correction: the Fire DOES have a built-in email client. It’s even listed on Amazon’s Kindle Fire product page.

    • Brandon Hickie

      Thanks for catching this mistake Tom.  I will update the post.

  • Noemail

    Let’s face it – very few people actually do productive work on the Ipads.  Peering over shoulders on the subway, it appears almost all iPad users are watching/listening to some multimedia or playing a game (Angry Birds).  Was this the intent of spending $600?  To get respectable performance to performance these ‘tasks’ for less than $200 will definitely gather a following.  For Amazon, selling at a loss is certainly is a concern, but, as you mentioned, if they become trapped in the Amazon ecosystem, then it could well be worth it.  They’ve figured this out with Prime, but the book lending/sharing and gratuitous book each month does pose cannabalization threats.  Are people willing to spread out their reading habits to exploit the perk, or will they consider it gesture of goodwill that keeps them with Amazon?  I think we’ll certainly see a dichotomy, so the question will be if the extra profits from the latter can be offset by the costs incurred by the former.

    With cellphone screens becoming larger and developing stronger computing performance, I now consider the tablet superfluous.  Plus, I’m old school and will never give up the feel of a newspaper/magazine/book.  As for the digitally inclined, they want value, and I think Kindle Fire is providing that much more so than the iPad.

    • Brandon Hickie

      Thanks for this great comment.  I think you are pointing out an important point that Amazon is trying to exploit with its low-end tablet market entrance.  Use cases for tablets vary greatly between business users and low-end content consuming users and the current tablet offerings do not address the low-end content consuming end of the market.  Amazon is gambling that this will open up a larger market for content consumption and is betting that being the tablet OEM for this new user segment will give it an advantageous positioning in selling them its digital content services.  I will write more about this and how bundle pricing plays into the overall Amazon pricing strategy in my post later this week.

      • Guest

        “Amazon is gambling that this will open up a larger market for content consumption and is betting that being the tablet OEM for this new user segment will give it an advantageous positioning in selling them its digital content services.”
         
        I wholeheartedly agree with your statement.  Unfortunately, I don’t have faith in the Amazon strategy.  While I do believe it will lead to Amazon becoming the market leader in selling digital services, or at least solidifying its dominant position as part of an oligopolgy offering these services (alongside iTunes, Google, Facebook, possibly Microsoft in the near future), they will fall far short of the profit trajectory that Bezos is dreaming of, simply because of what they are basically selling – commodities.  It’s almost impossible to stretch margins on commodities.
         
        It’s clear that Bezos wants Amazon to be a digital Wal-mart, a one-stop shop that saves you time from bouncing from place to place.  This works in the bricks and mortar version because of the time that is consumed traveling to each store as well as costs of transportation.  [Do I really want to spend the half-gallon of gas to save $2.50 on a trash can offered at Target on the other side of town?]  I believe the term is called ‘stickiness’ that describes keeping the user glued to your site.  I think Bezos is far too sanguine about its prevalence.  It’s so easy to open two or more web browsers to compare prices across the web and then complete the transaction, eliminating the opportunity costs one considers in the brick and mortar situation I described.
         
        So, sure, Amazon will be the biggest game in town, but at what cost and how much benefit?  I know that they are willing to absorb losses because they make money from hosting third-party web stores, offering cloud computing, etc., but now the your bread and butter has changed, so what’s the point?  Maybe that’s the idea – drive so much traffic to your website that the ancillary portals become a main driver of revenue.  [That's probably where Yahoo! failed.] If that’s the case, then maybe Bezos is more of an evil genius than I thought.

  • Molly Loyer

    Woopee !! thanks god i found this article, im gonna have the exam tomorrow about marketing strategy for the Kindle !! , this gives me some ideas ! many thanks

    • http://blog.openviewpartners.com/author/brandonhickie/ Brandon Hickie

      I am glad you found this post helpful.  Can you add anything else to this post about what you have learned about the Kindle Fire Marketing Strategy? 

  • Marissa Dunn

    A group of students and myself are doing a semester long project on the Kindle Fire and it’s marketing strategy.  Reading this piece has really helped condense our own thoughts and ideas to the basic information needed to be portrayed.  Good content and looking forward to reading more from this site in the future.

  • ron

    Using the same sex marriage angle in your recent commercial has convinced me and members of my family to never buy a kindle product . Foolish on Amazons part.