Kindle Fire’s a hit, but not quite in the way Amazon expected -yet

October 13, 2013

And their mechanism for commerce was to turn our computers into a cash register. With this backdrop, it is fascinating to analyze Amazon's Kindle Fire initiatives.

When Amazon jumped into the e-book reader market it made a great deal of sense. Amazon had a differentiated advantage due to their massive investment in gaining digital rights to many of the analog books they were selling. 

The Kindle readers, tied to the Amazon ecosystem, dominated the e-reader space. During that time nearly every CES (Consumer Electronics Show) I attended grew in the number of fast followers trying to jump on the e-reader bandwagon.

None did as well as the Kindle readers and it was simply due to Amazon's ecosystem. Amazon had a clear differentiated advantage that translated into consumer value with their e-readers. 

So does that same differentiated advantage apply to their Kindle Fire strategy? Not so much.

While we don't know for sure how many Kindle Fire have been sold, the best estimates I've seen peg them around 45 million to date. Those are good numbers, especially when you consider Amazon has a limited regional reach compared to iPad.

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The issue, as I see it going forward is that the Kindle Fire does not have the same differentiated advantage that the Kindle e-readers did.

With the Fire, Amazon is competing against the likes of the iPad which offers all the same experiences of the Kindle Fire and then some.  So why is Amazon in the hardware business?

There are several ways to look at this.  My initial belief when Amazon launched the Kindle Fire's was that Amazon would tightly integrate their commerce experience on the Fire tablets and create the best shopping experience within Amazon's ecosystem on the market.

This did not happen. The Kindle Fire has been more a media tablet than a commerce tablet for Amazon's ecosystem.  

In fact, interestingly, the Amazon tablet in general is driving less e-commerce spending than other tablets on the market.

Data from a 2012 Monetate survey reveals that Amazon Kindle Fire users spend approximately $95 a quarter in digital transactions from the device while the iPad average quarterly spend is approximately $124 dollars.

While these figures are about a year old, iPad users typically profile as having higher net incomes than other tablet owners and I would expect they have maintained their rank as the biggest T-commerce spenders. You might also assume that someone paying $500+ for a tablet is going to be a bigger spender than someone paying half that amount.

But I do think this is still an important point to watch strategically for Amazon to see if the Kindle Fire numbers go up or what Bezos & company might do to help them go up.

Fire in the enterprise

Amazon has recently added a number of enterprise specific features to the Kindle Fire. This, is actually fascinating and indicative of the types of usages we are observing with Kindle Fires. There is no doubt the Kindle Fire is a great media tablet but the idea that people are wanting to check email and perhaps even review documents is interesting. 

We had heard that IT managers were noticing Kindle Fire's were being brought in by consumers to use to watch video or play games during breaks and lunch. Often times these same customers were interested in checking email as well. This is where we believe the enterprise friendly features Amazon built in were born from.

Without question there are better tablets on the market for doing things like productivity which is why we see iPads and Samsung tablets higher up on the IT managers support list. But it has been interesting to see this opportunity develop for Amazon and whether it's able to run with it.

(See also: Amazon's newest Kindle Fire tablets pack plenty of business punch)

The hardware strategy

My feeling is that Kindle Fire business is important to Amazon but not essential. Like all of Amazon's investments in businesses there is a long term goal. The Kindle Fire right now is playing more of a data gathering tool than anything else for Amazon. They are learning how tablet customers and more specifically Amazon customers using tablets are doing with regard to e-commerce, media consumption, and app usage / web browsing. 

This will have benefits in the long term as Amazon can continue to customize their offerings uniquely for their customers.

To its credit, Amazon exhibits a valuable trait, similar to Apple, that continually gets misunderstood by investors and main stream media — patience.

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