Last week Amazon announced the launch of the Kindle Fire, a tablet device targeting Apple’s very successful iPad.
One of the most debatable parts of the launch is the price: Amazon set the price at $199, significantly below Apple’s cheapest iPad, which sells for $499.
Many people have attacked Amazon for the pricing move, declaring that the $199 price is simply too low. Indeed, some analysts have studied the likely product costs and determined that at a $199 price Amazon is making very little profit, so little that the Fire could be considered a non-profit venture.
So did Amazon pick the right price?
To understand that situation, it is critical to look at the broader picture. Apple is now flying high, scooping up new customers round the world. The company has an absurd amount of cash, some incredible products and one of the world’s most coveted brands.
How do you compete with Apple?
You don’t stop Apple by building a slightly better device; the Apple brand will overwhelm even a superior product. You don’t stop Apple with a big innovation; Apple is setting the pace these days.
The cleanest way to differentiate from Apple in a way that people care about is to set a much lower price. Indeed, it might be the only option right now.
The other issue is that Apple is an enormous long-term threat to Amazon. If Apple dominates distribution of media including books, films and songs, then Amazon will take a significant hit. Apple could even enter the world of retailing at some point, directly attacking Amazon’s core business. If Amazon wants to survive it has to slow Apple’s momentum.
Will the Fire beat the iPad? I suspect not. But Amazon doesn’t have to beat the iPad. By creating a viable alternative to the iPad, Amazon will put pressure on Apple, and ensure that the entire world doesn’t become Apple’s domain.