What the Amazon Kindle Fire means for Microsoft’s tablet ambitions

10 Oct
October 10, 2011

Last month’s launch by Amazon of the Kindle Fire tablet finally delivered a competitor to the Apple iPad that focussed on content, rather than feature sets or specifications. Tablet makers have been struggling to compete with Apple’s supplier agreements and manufacturing efficiencies in order to develop a product that generates consumer envy at the $499 USD price point that the iPad popularised. With the Kindle Fire, Amazon has chosen to take a different route, a 7 inch tablet priced at $199 USD made primarily to view Amazon content.

Introducing the All-New Kindle Family: Four New Kindles, Four Amazing Price Points

New “Kindle Fire” – the Kindle for movies, TV shows, music, books, magazines, apps, games, and web browsing with all the content, free storage in the Amazon Cloud, Whispersync, Amazon’s new revolutionary cloud-accelerated web browser, vibrant color touch screen, and powerful dual-core processor – all for only $199.

The Kindle Fire eschews high end technical specifications and gorgeous design in lieu of a product that concentrates on fulfilling the basic premise of a tablet – watching videos, reading books and magazine, looking at photos, browsing the web and playing games. Amazon’s marketing for the Kindle Fire doesn’t make the tablet out to be a content creation device, as Apple is promoting with the iPad, but instead aims it primarily at content consumption. The Amazon marketplace makes it easy to purchase digital media, and the built in “Amazon Silk”  browser uses Amazon’s cloud computing services in the back end to optimise and improve the tablet web browsing experience.

Meanwhile, Microsoft took the covers off Windows 8 at the Build Windows conference in mid September, and along with constant updates on the Building Windows 8 blog has been lifting the kimono on the first version of Windows aimed at a “no compromise” experience on both tablets and traditional PC’s.

Experiencing Windows 8 touch on Windows 7 hardware

Keeping the user experience at the top of the requirements, Windows 8 will kick off a new generation of computing devices, and it is only natural that touchscreen technologies will evolve with it. Our goal on the Windows team is to work in lock step with external hardware partners in the development of new hardware that will more fully support Windows 8 requirements, and ultimately provide the smooth, responsive, and natural touch experience that Windows users expect.

But Windows 8 is at least (by most accounts) a year or so away, so what does Amazon’s announcement mean to Microsoft’s plans for future Windows 8 tablets?

For starters, Amazon will effectively own the bottom end of the tablet market, a segment that in the pc world at least is dominated by Microsoft.  While the iPad is still the tablet that many covet as a luxury item, Amazon has undercut the main Android tablet manufactures such as Motorola and Samsung with very aggressive pricing.  In fact, Android tablet makers relying on Android are the big losers, as is Google itself. Despite running on Google’s Android mobile operating system, there was barely any mention of Google in Amazon’s announcement.  The Kindle Fire relies on Amazon’s Appstore for Android not Google’s,  and Google branding is noticeably absent from the device.  The Amazon Silk browser is the big drawcard, along with Amazon’s huge range of content. Why would consumers pick a competing Android tablet?

At the high end of the market, the iPad’s impressive sales numbers show no sign of abating against strengthening Android competition, and attempts by other tablet makers to compete at the high end have failed, with RIM allegedly drastically cutting sales forecasts for the PlayBook and HP dumping the TouchPad in a fire sale, further reinforcing to consumers that the $499 iPad price point is unsustainable for computing tablets that rightly or wrongly are not coveted as a luxury brand the way Apple products are.

Amazon’s New Kindles

Apple and Amazon are approaching this tablet territory from opposing sides. The iPad takes it on from the high end. It’s the best possible device in that price range from the world’s best maker of devices. The Kindle Fire takes it on from the low end. The iPad is a credible laptop replacement for many people — and with iCloud and another year or two of hardware improvements, that’s going to be true for more and more people. The Kindle Fire is a laptop replacement for almost no one. It’s a peripheral, not a second computer — and it’s priced accordingly. You can get a Kindle Fire and a new top-of-the-line e-ink Kindle Touch for less than the price of an iPad. It’s a very different take.

This hammer and anvil approach limits the uncharted market segments available to Microsoft, with the obvious exception of the enterprise market where Microsoft’s previous tablet strategy has performed poorly, except for niche uses such as in medicine or manufacturing.  In addition, how does Microsoft actually make money off Windows 8 tablets without subsidising hardware with compelling content, or charging a premium price for a premium product and user experience?

Amazon vs. Apple? No, it’s Amazon and Apple vs. Everyone Else

Apple makes money from the sale of the iPad and its accessories, with a bit more coming from applications and content. Given the breath-taking pricing for the Kindle line, Amazon will probably lose money on the hardware, or at best break even. Its main profit will have to come from the sale of ebooks and movies and all sorts of other media products, plus some apps. Those revenues may take years to fully develop, so Amazon is playing a very long game.

Yet the enterprise space, despite some inroads from Apple, is Microsoft’s best hope of widespread adoption on Windows 8 in the tablet space. This is why Windows 8, with its “no-compromise” experience, must continue to offer backwards compatibility to enterprise and legacy applications. Rather than Apple’s experience of consumer adoption filtering into the enterprise, Microsoft needs to convince enterprises of the benefits for a Windows 8 tablet offering, and hope that this filters down to consumer demand.

Windows 8 will sell well on the desktop, however the success of Windows 8 in the tablet market is far from assured – yet Microsoft needs to succeed here through legacy application support to curtail Apple’s dominance of the consumer tablet market and  growing influence in the Enterprise space.  Success for Windows 8 tablets will also familiarise customers with the metro user interface, giving Windows Phone sales a ‘halo effect ‘ that will help compete against Google and Apple in the smartphone race.

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