Of course Amazon’s Kindle Fire cannibalizes Apple’s iPad

“There are many different kinds of consumers with very different needs, wants, drivers, and checkbooks. Sure, our friends and family kind of seem like us, but that’s because its human nature to surround ourselves with people similar to ourselves. We may think that we are a lot different from our friends, but statistically, we are very similar,” Patrick Moorhead writes for Tech.pinions. “Let me give you just one example: According to the U.S. Census bureau, the median household income in 2010 was pegged at $49,445. Do you make a lot more… a lot less? You get the idea.”

Moorhead writes, “As it relates to the iPad, there are consumers who would have stretched up to buy a $499 iPad 2 who will, instead, buy the $199 Fire.”

“Based on information from my contacts, both Apple and Amazon have been conservative in their production forecasts. Apple doesn’t want to get stuck with potential inventory before their next iPad and Amazon took a cautious tone given it’s a new product and they barely break even on the gross margin side with an untested video and music upside content model,” Moorhead writes. Net-net, for the holidays, both will sell out and we won’t be able to see who will be the finest cannibal. BUT after the holidays, when inventories are adjusted and there isn’t a line for either, if Apple either doesn’t adjust their pricing, introduce a lite-iPad, a 7″ iPad, or a new kind of subsidized business model, they will lose out in volume to the new class of 7” tablets, not only from Amazon, but also from Barnes and Noble.”

Read more in the full article here.

MacDailyNews Take: Moorhead is correct (although it’s fair to mention that iPad cannibalizes Amazon’s Kindle Fire, too. People who want 3G connectivity, a screen more than double the size, more and better apps, greater security, etc. will choose iPad over cheapo Android tablets with tiny screens). Regardless, Apple will adjust to the changing dynamics of the marketplace, as they always do. Watch and see, this is one area where Tim Cook shines especially brightly.

Related articles:
Wired reviews Amazon’s tiny-screen Kindle Fire: Web browsing sucks, emotionally draining, makes reading a chore – November 14, 2011
NY Times’ Pogue reviews Amazon’s tiny-screen Kindle Fire: Sluggish, ornery, unpolished – November 14, 2011
The Verge reviews Amazon’s tiny-screen Kindle Fire: Uninspired, confusing, incredibly unoriginal – November 14, 2011
Engadget reviews Amazon’s tiny-screen Kindle Fire: Sluggish, clunky, too limiting and restricted – November 14, 2011

PC Magazine reviews Apple iOS 5: The best phone and tablet OS, Editors’ Choice – October 15, 2011
The Guardian reviews Apple iPad 2: Ahead of the pack – March 25, 2011
The Telegraph reviews Apple iPad 2: Does everything better; now’s the perfect time to join the iPad club – March 25, 2011
Computerworld reviews Apple’s iPad 2: ‘The Holy Grail of computing’ – March 16, 2011
Ars Technica reviews Apple iPad 2: Big performance gains in a slimmer package
Associated Press reviews Apple iPad 2: Apple pulls further ahead – March 10, 2011
PC Mag reviews Apple iPad 2: The tablet to get; Editors’ Choice – March 10, 2011
Associated Press reviews Apple iPad 2: Apple pulls further ahead – March 10, 2011
PC Mag reviews Apple iPad 2: The tablet to get; Editors’ Choice – March 10, 2011
Pogue reviews Apple iPad 2: Thinner, lighter, and faster transforms the experience – March 10, 2011
Baig reviews Apple iPad 2: Second to none – March 10, 2011

50 Comments

  1. If I don’t have enough money to buy an iPad what makes you think I would buy a Fire? It’s really just another luxury item one doesn’t need to live life. Besides, as bad as the review of the Fire are, 199 is a waste of money!

      1. No, you just didn’t understand him: just because someone doesn’t have the $500, doesn’t mean they will automatically compromise to a lessor “pretend iPad”.
        You can compromise else ware or, just wait till you have the money for a real iPad

        P.S. Given the observations of the majority of reviewers of the kindle, fire I think waiting till they saved enough for the real iPad is prudent.

    1. Well, we are ignoring screen size and only looking at $199.00. Why get that crappy limited plastic Amazon Fire when I can get an Apple iPod touch. Isn’t that what the battle is over. If size isn’t in question, the iPod touch is the superior choice at the $199.00 price point!

      Isn’t that why Amazon is pricing it at $199 and loosing $50 or $85 per unit!

    2. I think the $99 TouchPad fire sale shows that there are probably quite a few people who WOULD be willing to “risk” $199 on a Kindle Fire, but not $499 on an iPad.

      I think many of us forget that iPad was Apple’s answer to “netbooks” (cheap laptops). Instead of coming up with an ultra-cheap MacBook (as the “experts” advised), Apple did another “Think Different” move and invented new category of computing device, priced in the typical netbook price range.

      And now, iPad is seen as a high-end “luxury” product because netbooks are all but forgotten as iPad’s original competition.

    1. Agreed – “cannibalization” refers to people buying iPads instead of MacBooks. Not when people buy iPads instead of Kindle Fires. You can only “cannibalize” sales of your own products, not somebody else’s. Neither MDN nor the article they cite are using this term properly.

      1. Just to add, I’d allow for one Android tablet cannibalizing other Android tablets from different manufacturers.

        That is, the Fire will cannibalize other Android tablet sales from Motorola, Samsung and the like. Google has created a cannibalistic environment for their platform.

  2. I will say one thing about the 7″ form factor – it does have value for some market niches, at least as a portable device that fits in a purse or larger pocket (for example, a physician’s lab coat). Don’t nay-say that, because a physician uses his hands way to much to have to pick up, put down, write, examine, move from room to room, etc. an iPad-sized device.

    Similarly, if a dedicated group of game developers really wanted to address this size, it will appeal to a lot of the kids who currently live in their iPod touches (and again, would be a nice-sized form factor for many).

    I personally hope that Apple is working on a 7 inch iPod touch (I wouldn’t market it as an iPad mini – Steve said he wouldn’t make a tablet that small, so instead make it an iPod that large). I’ve no real use for one, but there will be enough people who do that will justify it. And now that the market is maturing for tablets, Apple would be wise to get into that space with the iPod touch (or iPod stroke?).

    1. iPad to large for doctors? I think not. It is smaller than the clip boards full of papers they normally carry around, but with less clutter and less chance of errors due to paper loss.
      I got that argument from my kids doctor yesterday when I asked her why she uses an iPad at the office. And she also showed us the digital x-rays on the iPad instead of printing them out and posting them on the light board. It was brilliant, loved it.

  3. The Kindle Fire and the iPad are two very different animals. One is 45% the size of the other, they both do books, music, TV and Movie video and that’s about it.

    Games, Apps for just about everything, content creation, camera for stills and movies, optional cell radio for remote use, decent memory capacity, ease of use, OS updates, magazine reading, the list of stuff the Kindle Fire doesn’t do goes on and on.

    The idiot might as well say paperback novels are cannibalizing TV.

  4. I am sure, despite its many flaws, that the Kindle Fire will be a big win for Amazon. The reason has less to do with the device than the price: consumers are sheep and will buy something cheap. But I believe the real cannibalization will happen not to Apple, but to any other company attempting to build a tablet using Android.

    What makes Amazon competitive in this case isn’t the Fire but the fact that it is the razor for the blades: Amazon’s vast store of products and media. By carefully establishing amazon.com for myriad products and media, Amazon has created a huge barrier to entry to Samsung, HTC or any other Android licensee.

    Yes, Fire sales (pun intended) will undercut that iPad. But I believe there will be a different kind of customer for the iPad, one that wants a full-featured tablet, and one willingly locked into Apple’s garden of media and online services.

    So yes, Amazon will succeed. So will Apple. Pity the other guys.

    1. There are other Android tablets as cheap and even cheaper than the Fire, and they aren’t selling. So why will the Fire be hit?

      It won’t. As nothing makes it different, the same fate awaits it. It’s yet another bargain-bin tablet that runs poorly and is a pain in the ass to use.

      Amazon’s vast store of products isn’t a selling point, because you can access it from any tablet with a halfway functional web browser. Hell, you can even use their music store from another Android tablet or an iPad.

      It’ll fail completely, but “analysts” will “speculate” that it’s a super awesome mega smash hit and Amazon will most likely refuse to release sales numbers so they can milk the impression that it’s doing well as long as they possibly can.

  5. I’m sure the Kindle Fire will sell for Christmas. I’m also sure it will be returned in droves if the reviews I have read thus far are remotely accurate.

    These writers keep forgetting that the Kindle Fire has very limited apps, only 8 GB memory (6 GB usable), no 3G, significantly smaller screen, and can’t possibly compete with an iPad’s usability.

    I am constantly amazed that these bloggers/commentators focus almost solely on price rather than value. Just because something costs less doesn’t mean it’s not a POS.

  6. I think Amazon may find that those that buy a Kindle Fire because it is cheaper, may not spend much on content and are only looking for a cheap browser. Their best customers will probably be those who were happy with a reader already, and just want the browser as a bonus. I see this as mainly competition for the nook, although of course there will be casual buyers who will make the mistake of going cheap and settling for less.

  7. The 3.5″ screen on the iPod touch and iPhone is rapidly becoming an embarrassing anachronism. It’s too small to view anything on the Internet comfortably. 7″ would be the right size for the iPod touch to aspire to. 

    If Apple neglects to address this market, it’ll just have its lunch eaten by Android competitors much like a repeat of what happened with Apple’s absence from Verizon and Sprint for a number of years. Android will just grow and fill this niche and the battle will have to start anew when Apple finally wakes up and finds the niche too irresistible not to fill. 

    Much better to smother Android at birth and move into this niche preemptively as a countermeasure. 

    1. I STILL really can’t tell when you’re being a sarcastic Fake Steve Ballmer, and when you’re actually attempting to make a serious point.

      I suspect in this case it’s the latter, so let’s pull this one out once again:

      If you want a device that can fit in your hand, Apple has hand-sized devices.

      If you do not require a device that can fit in your hand, Apple has the iPad.

      The tweener devices are a completely dead-end worthless waste of money, time and human resources in general to produce in manufacturing, support with software, and therefore to buy as products.

      Which is why Apple will never produce your mythical 7″ do-everything (which translates in the real world to ‘do-nothing’) thingamajig any more than they will ever produce the mythical mid-range tower. Remember that?

      The clamor and demand for that has been deafening and constant among certain clueless circles such as the one you engender, and it all has amounted to naught.
      Thank goodness for that because nobody cares about the mid-range tower now, and that’s precisely because Apple simply defined it away.
      (BTX? Oh man, that’s some sterling work, Intel – and you’re still at it with the Ultrabook)

      So, what lunch are you referring to that might possibly be under threat? The bragging rights of marketshare? We have seen this game played out over and over again. Apple’s lunch – monetary profits – is actually tangible and drives positive growth and further advancements in the state-of-the art in computing technology.
      This is not at all what marketshare at the expense of everything else does – it accomplishes the exact opposite.

      1. I agree. Hold you iPhone and you’ll see that you can reach across it with you thumb, exactly what is needed on a phone. The iPad on the other hand displays the web at a good readable size and the keyboard is large enough to type comfortably. The 7 inch category is thr worst of both worlds.

  8. All the Android and pseudo-Android tablets out there now and perhaps soon to come will be cannibalizing each other. The Fire will sell like hotcakes simply because it’s cheap and does have access to video consumption, but it is clearly a front end for the Amazon retail world, and at least for now, not a lot else. No Google apps despite running a modified Android. No MS exchange for corporate email. No serious onboard storage, no 3g or 4g wireless… so it’s a storefront window intended strictly for consumption of media sold by Amazon. It’s actually a smart formula by Amazon, and they probably could have just given it away for nothing just to get the captive retail customer base, but if people are willing to pay $200 for the privilege of having a portal to Amazon in a dedicated device, they why not offset some of the cost of the device by selling it, too… Amazon is not a hardware company, it is an online retailer of books,media and products drop-shipped from third party sellers. They don’t need to make money on the hardware. The iPad is rapidly evolving from a device mainly used to consume media, and with iCloud taking shape, has become a piece of the “always connected” puzzle that compliments the rest of your digital life seamlessly (data access, content creation, communication, content/data sharing, etc.) There is room for both concepts, although if you already have an iPad (even an original one) you can run the free Amazon apps (Kindle, Amazon, etc) to access Amazon content without having to pay $200 for the ability to do so.

    As far as the 7″ native screen size (depending on resolution, of course) it likely will mean apps will have to be re-written to take advantage of that screen size, or they might just look strange. On the Fire several reviews I have read state this is a problem with many Android apps which will actually run on the Fire, but look clumsy and are not that easy to navigate because of the screen. All the iOS apps would have to be modified to run well on a 7″ screen iPad or iPod Touch, which is possible, but something to keep in mind. But, if they did it in a widescreen format to mainly be used as a HD video playback device, it could work… make it also $199 for the base model and see them explode on the market. Include GPS and cellular chips for nav apps and with Siri doing his/her thing, it would be quite interesting to see what the public would opt for in the 7″ space. It just has to be thought out carefully.

  9. Big (and rare) disagreement with this MDN statement…
    “Regardless, Apple will adjust to the changing dynamics of the marketplace, as they always do.”
    What? Like the way they adjusted to the marketplace and developed a netbook, or cheap computers? Maybe the 7″ is this year’s “wonder netbook” phenomenon.

    Seems to me that Apple forms the dynamics of the marketplace far more than “adjusts to”.

  10. “and they barely break even on the gross margin side”

    Literally everything I have read says that Amazon is losing money on the Kindle Fire. It’s not much, but it is not “break even”. Also gross margin is only part of the story. Even if Amazon spent ZERO on advertizing, project management, etc. (none of which goes into the gross margin calculation) Amazon still loses additional money on things like shipping and packaging.

    Amazon has taken the video game console attitude with the Kindle Fire: lose money on every Kindle Fire sale and make it up on sales of things that are played on it. It will be very interesting to see if this model holds up.

    I believe it was not until this year (2011) that Sony made back their sunk costs and individual unit sales losses on the PS3 to have that unit truly in the black. How long will it be before the Kindle Fire makes money for Amazon? Tablets iterate much more quickly than game consoles have. Amazon won’t have the luxury of taking multiple years to make up those loses.

  11. “Cannibalize”? I didn’t realize Amazon made iPads… or Apple made Kindle Fire. 🙂

    I think people who already own an iPad will buy iPad again. I think new customers who can afford to spend $500 and were planning to buy one already will still get an iPad.

    People who are unable or unwilling to spend $500 on a tablet may get a Kindle Fire. Most of them would not have purchased an iPad. So where is this “cannibalization”? The overlap between potential iPad customers and potential Kindle Fire customers does not seem very large.

    It’s clear from the reviews, written by experienced tablet users, that Kindle Fire does not provide a generally satisfactory user experience for them. However, Kindle Fire may be satisfactory for people who are new to tablets, and therefore have no basis for comparison.

    If it’s a good user experience for novice users, Kindle Fire will help build an installed base of experienced tablet users much faster than Apple can do by itself. A lot of those users will buy an iPad next. Amazon-sold content they have accumulated (except Android apps) is accessible from an iPad. And those customers will probably keep buying content from Amazon, through an iPad. I buy and read ebooks on my iPhone and Mac using the Kindle app. Does Amazon really care what device is used to buy its content?

    Apple gains a larger audience of potential iPad customers down the road. Amazon sells more content to both Kindle Fire and iPad users. A successful Kindle Fire means Apple and Amazon both win.

    1. I’ve never felt any compulsive need to read books in a Kindle app on my iPhone or iPad that are also available on iBooks. I much prefer iBooks over Kindle any day of the week. Text on iBooks look crisper and page turns on iBooks is better implemented with the mimicking of the actual turning of a page. All in all I’ve only read free books on my Kindle app and have used iBooks for almost everything else. Amazon just lacks taste in my opinion.

      1. To me, the animated page turn is gimmicky; the advantage of digital content is that you do NOT have to turn a physical page. It’s like listening to music and wanting to put a vinyl disc on the record player and place the needle in the gap between tracks, as part of the experience.

        You can swipe the screen (slowly or quickly) with Kindle app for iPhone, but I just tap the right side of the page (screen) to go to the next page (left side to go back). The animation is simply the page “sliding” left or right. I can do it while holding iPhone with just one hand.

        But the main PLUS for me is being able to read ebooks I buy on my Mac’s screen, when that is convenient. For that reason alone, I choose to buy ebooks from Amazon.

        1. I want to have the impression that I’m reading a physical book. Mimicking page turns is an important aspect of that. I don’t want to turn a book reading experience into cold hard words displayed on an electronic page. I still want to be fooled into thinking I’m reading ink on paper. I think iBooks carries this out seamlessly. I am fooled into thinking I’m reading a novel penned by Hemingway, not something transcribed into an electronic medium which would take the warmth and meaning of the words away.

          1. I can see what you are saying, but for me, I “get into” the book more as a continuous “stream” of words. Having to “turn a page,” or seeing the page turn, is a distraction that is (for me) unnecessary and artificial for digital content. Granted, I still have to tell Kindle app to show the next page, but the effect is intentionally minimal.

            Back when I was reading some free “classic” novels using my Palm device (Handspring Visor), the e-reader had a feature that continuously (as smoothly as possible) scrolled the text upward on the page, at a speed that I controlled (that matched reading speed). I tried it, but didn’t like it because the pixels were large enough to see clearly (especially on the monochrome LCD), and it was distracting to see them change as the lines of text scrolled up.

            On an iPad or iPhone screen, even without “retina” pixel density, I can see something like that working much better. It would be somewhat like seeing the credits “roll up” at the end of a movie. Maybe Kindle app should add that as one reading mode. Then, it would truly be a continuous “stream of words,” and a “page” would no longer be relevant.

        2. I disagree. I bought an ebook this week that is sold by both Apple and Amazon. I bought it from Apple in particular because I like the page turning and general setup of iBooks over the kindle app.

  12. 1. Want to chime in: CAN WE LEARN THE MEANING OF WORDS??? Cannibalize is eating your own; like “does iPad cannibalize mac”. What he’s talking about is called “competition.” I know it’s a big word but English is a language worth learning if you’re an American.

    2. I think Apple is helped by the most successful Andorid tablet being on such a distinct and low end “fork”. Amazon just killed the market for Samsung and everyone else.

    And from what I’ve read about the developer experience Amazon gives, I’d say this cements iOS’s place as many many times more lucrative for software developers.

    The interesting issue will be the coffee house test. This measures REAL WORLD use, not just purchase. You see iPads at sbux they really make it out of the house. I’m at at least one sbux a day and I’ve maybe seen one non-iPad tablet EVER.

    As an iOS developer and ecosystem member I really don’t care how many widgets amazon sells. What matters is whether they’re actively used and whether there emerges a real market for non-free software.

  13. You’re potentially missing something here. The Kindle Fire has the ability to change the tablet landscape SIGNIFICANTLY. Here’s how. The Fire is not really a competitor to the iPad — it’s not really fully functional as a multi-purpose tablet. But it most definitely will be the target of every other Android tablet after next week. As we are already seeing, it will put downward pricing pressure on the general purpose Android tablets in the market (i.e., Galaxy Tab, Zoom, Transformer, and whatever HTC introduces next). These tablets do have the hardware to compete with the iPad right now. The thing holding them back is software. But in only a few months, the majority of them will have Ice Cream Sandwich. Whether or not this will compete better with iOS on the iPad is certainly debatable. But it will most certainly unite phone and tablet experiences on the Android side of things. The primary impact this will have is that you will see an explosion of apps that run very well on an Android tablet. This has been one of the real downsides to an Android tablet currently. With this hurdle removed, you will see several fully-featured tablets that are capable of competing with the iPad. They may not be as good, but they will be good enough in the mind of most consumers. And with the downward pricing pressure applied to Android tablets by the Kindle Fire, Apple could really see an impact to their dominance with the iPad. Just like with phones, you’ll see Android start to overtake the market. This is due simply to mass availability due to so many different hardware manufacturers. By summer, I’m betting you’ll finally see Android tablets take off in a way that they haven’t yet been able to do so to date.

    So when Jane Doe grows tired of her Fire next summer and wants an improved tablet experience, she may or may not be inclined to choose an iPad. By that time she’ll have a plethora of Android tablets that can compete with the iPad much better than they do today, and at lower prices than the iPad. Of course, this doesn’t factor in what Apple may have up it’s sleeve between now and then. Should be interesting to see.

    1. Rick,
      Who will make this plethora of Android tables at lower prices than the iPad? Where did you get the scoop that one can make a profit undercutting the iPad with similar features? Even if Apple does nothing to improve the iPad they have a huge lead on the field. I I would like a piece of your bet. For two years the iPad killers have been trying to do just what you say they will do, and nary a one has come even close. Tablets are not subsidized by contract like phones, as I am sure you know. Whole different ballgame. You give the droid makers too much credit. I will lay you odds in fact that there will be less companies making tablets a year from now. Who can hold our wager?

      1. You’re still missing the point. Yes, cell phone subsidies are a whole different ballgame than for tablets right now. But Amazon’s tablet is changing the ballgame rules for tablets. They are selling it at or near a loss while anticipating that they will make up for the loss in content sales. This will disrupt the entire tablet market, including Apple and others who currently have a different market strategy. Like it or not, the rules have changed. I am curious to see how this will play out, but I am also curious to see how Apple will respond.

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