by Anthony John Agnello | February 23, 2012 1:15 pm
It was inevitable. Amazon (NASDAQ:AMZN) is preparing to unleash yet another Kindle Fire on a tablet-hungry world, just months after it carved a niche for itself in the market dominated by Apple (NASDAQ:AAPL) and its iPad.
A rumor originating at Taiwanese outlet Digitimes, and reported again by All Things Digital, said that Amazon will release a Kindle Fire with a 10-inch screen sometime in the second quarter. Foxconn (PINK:FXCNY) is said to be manufacturing the tablet, which is also rumored to be a significant technological upgrade over the existing 7-inch model. Amazon should tread lightly, though—it may be wiser to wait awhile before releasing the new device.
For starters, Amazon shouldn’t move to slow down the existing Kindle Fire’s momentum. Since its launch in November, the Kindle Fire has taken an approximately 14% share of the global tablet market, according to research group IHS iSuppli. Of the more than 27 million tablets sold around the world during the fourth quarter of 2011, 3.9 million were Kindle Fires. That’s a far cry from the more than 15 million iPads sold by Apple during the same period, but it’s double the sales of Samsung‘s (PINK:SSNLF) line of Google (NASDAQ:GOOG) Android-powered tablets and Barnes & Noble‘s (NYSE:BKS) Nook tablet.
With Kindle sales still hot in the first quarter, fueled by an iPad-slamming advertising campaign boasting that people can buy three Kindles (including the Fire tablet and basic e-readers) for the price of one Apple tablet, now is not the time for Amazon to confuse consumers by rolling out yet another Kindle iteration.
There’s also the competition. Apple is expected to release its third-generation iPad sometime in March. The iPad 3 will likely be priced about the same as the existing model, which would be in keeping with Apple’s pricing strategy for past device updates. It will also feature faster processor and an improved screen that will be on par with the display on current iPhones.
Some rumors suggest that Apple will continue to produce the iPad 2 as a budget model. If that’s the case, Amazon will likely have to lower the price of the current Kindle Fire to maintain market share—a cost burden that will be intensified if the company is ramping up production of a new model. Amazon was previously rumored to actually be slowing Kindle Fire production at the end of the first quarter to brace for the impact the iPad 3 will have on the market.
The company’s efforts to entice consumers should be focused elsewhere as well. As indicated in HIS iSuppli’s report, the Kindle Fire has sold but it hasn’t yet generated significant interest in Amazon’s new array of media services, particularly Amazon Prime, a premium subscription service that costs $79 per year. Prime offers subscribers access to discounted shipping on goods ordered from Amazon, the Amazon Instant Video streaming video service, and a library of e-books.
The Kindle Fire was always intended to be a Trojan horse for Amazon Prime, tempting users with an array of low-cost services that, for Amazon, could be quite profitable. For every 1 million subscribers to Amazon Prime, Amazon’s revenue could grow as much as 1.5%.
The Kindle Fire hasn’t spurred new Amazon Prime sign-ups yet, though. A Feb. 14 report by Bloomberg noted that even though early estimates put Prime membership between 10 million and 13 million members, the number is in fact much lower. The company would be better off spending its limited amount of cash on growing Prime—both through promotions to existing Kindle Fire owners and aggressive advertising—than on the monumentally expensive endeavor of adding yet another device to its production bill.
Now is a crucial time for Amazon and the Kindle Fire. In just a few short months, the company has managed to do what most technology companies couldn’t in two years: steal market share from Apple. Now is the time for Amazon to stay the course.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.
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