Why Kindle’s No. 2 Status Might Feel like a Victory for Amazon

by Cynthia Wilson | February 21, 2012 2:47 pm

Being No. 2 usually isn’t something to brag about. But it’s not a bad place for Amazon’s (NASDAQ:AMZN) Kindle Fire to be in the computer tablet wars, especially considering the lead Apple’s (NASDAQ:AAPL[1]) iPad has over competitors.

Amazon shipped roughly 3.9 million of the electronic reading tablets during the Kindle Fire’s debut, in fourth-quarter last year, helping it capture 14% of the market share during the period. That’s significantly better than the 2.1 million Galaxy tablets Samsung (PINK:SSNLF[2]) sold during the period, or the 1.9 million Nook tablets sold by Barnes & Noble (NYSE:BKS[3]).

Amazon’s e-reader made gains by carving out a niche with consumers as a personal entertainment tablet—a platform for reading books, watching movies, social networking, and playing games. Those uses obviously support Amazon’s new book publishing division, which will produce exclusive content for Kindle tablets. The iPad, meanwhile, is being viewed more as a production device by professionals and students.

iPad market lead still secure

And yet the Kindle Fire’s impressive start still isn’t considered a threat to the iPad or iPad 2, which sold 40.5 million in 2011. No one expects that to change anytime soon. Amazon knows that most of its Kindle Fire purchases were spurred by price cuts, which actually cost the company money because Amazon sold the tablets for less than it cost to make them. What’s more, Amazon cut first-quarter 2012 production to about 3 million tablets in anticipation of lower post-holiday demand for the e-reader and greater competition in the category from the pending release of Apple’s iPad 3.

The decision to cut production may help future Kindle sales when Amazon releases newer models. With fewer older models available, Amazon won’t have to worry that the price of newer models will be undercut. But helping the Kindle retain its second-place standing might require Amazon to rethink how it will pitch the Kindle Fire as an alternative to the iPad and to other, lower-priced tablets hitting the market from recognizable names.

In addition to the Nook, which starts at $249, the Kindle Fire will also compete with Sony’s (NYSE:SNE[4]) Dash, starting at $148, and the VTab, from privately held Vizio, which has a $269 starting price, according to CNET.

And there are rumors that Apple will continue to produce the iPad 2 and reposition it as a low-cost alternative to the iPad 3. If that happens, Amazon may not only find itself battling Sony and Vizio on price, but Apple as well on functionally. That would be a three-way assault and a big challenge to the Kindle’s market share, even if Amazon were to deliver high-end tablets designed to compete directly with iPad features.

Source URL: https://investorplace.com/2012/02/why-kindles-no-2-status-might-feel-like-a-victory-for-amazon-amzn-aapl-bks/

---