Amazon Sets Kindle Fire to Sell Media

How the Company Plans to Battle the iPad

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The original Kindle had a boring two-color screen, limited features, and was pretty much useless unless you filled it with a bunch of e-books. Then Amazon went on to sell millions of Kindles (it won't say exactly how many), igniting a lively e-book marketplace and ultimately selling more books through Kindle than in physical form.

Now enter the Kindle Fire. It's got a limited feature set and a small screen compared to the Apple iPad, but it also comes with a price compatible with one-click buying: $199. The tablet marketplace -- now at 30 million, and dominated by the iPad -- seems destined to segment and explode, accelerating the consumption of content and advertising.

While the iPad is a powerful computer -- a laptop replacement for some -- Amazon's new tablet is about the sale and delivery of content, both on the web and from the Amazon store. Apple is a hardware company, a maker of devices that people fetishize. No one will fetishize the Fire, but Amazon isn't in this to profit from hardware -- Piper Jaffray analyst Gene Muster estimated that the company will lose $50 on each unit sold. It's in it to sell the media, pure and simple.

"Even if Amazon loses money on each, they are going to make it back through selling more content through the lifetime of the device," said Noah Elkin, hardware analyst at eMarketer.

Today, the tablet market is still relatively small, and thoroughly dominated by Apple. Its closest competitor is Samsung, which has sold just 2 million Galaxy tablets. Amazon is already taking pre-orders for the Fire, and Forrester is predicting it will sell 3 million to 4 million in the fourth quarter of 2011 alone, "catalyzing the sales of multimedia content, as well as e-commerce services such as Amazon Prime."

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