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What's the next step for the Kindle Fire tablet?

Like most technology products, each new version of Amazon’s Kindle eInk reader is lower-priced than the last one. There’s been speculation that the price will eventually go to zero, perhaps taking a page out of the cell phone model where the consumer commits to a long-term plan. There’s no monthly service plan for a Kindle so I always figured Amazon would require consumers to purchase a minimum number of ebooks over a 1- or 2-year period instead.

That makes sense, but there’s a bigger play Amazon probably has in mind and I’ll bet it will eventually feature their tablet, the Kindle Fire.

Think for a moment about the new and likely upcoming competition the Fire is encountering. First there’s Google’s Nexus 7. I’ve heard the Nexus 7 described as “the tablet the Kindle Fire should have been.” If that’s not bad enough, there’s also the iPad mini Apple is supposedly working on.

What if the smaller iPad matches the $199 price of the Nexus and Fire? Will Amazon go to $149? 99? How about free?

I figure Bezos & Co. has a sense of urgency in the tablet space, especially if Apple delivers something for $199. But if Amazon drops the Fire’s price to zero can they really subsidize it with ebook purchases? Perhaps, but the more likely model is one that incorporates Amazon’s Prime membership program.

Prime is one the key factors that distinguishes Amazon from everyone else. Amazon Prime is the online equivalent of a Costco or Sam’s Club membership. Amazon wants everyone to become a Prime member because it greatly increases the odds you’ll buy more products from them; after all, you want to justify that $79/year investment, right?

I can’t think of a better way for Amazon to enlist more Prime members than by pulling them in with a free Kindle Fire. Amazon would probably lose more money in the short term but Mr. Bezos is focused on the long term and Prime membership is at the heart of Amazon’s long term plans.

As this Forbes article’s headline says, “Amazon is no Walmart…yet.” Prime membership is Amazon’s path to surpassing Walmart. There’s probably no better way to build that path than by giving consumers free tablets in exchange for a multi-year commitment to the Prime service.

What do you think? Are we likely to see a free Kindle Fire that requires a multi-year Prime subscription?

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  • Allen

    I’m surprised Amazon doesn’t already provide the Fire free to Prime customers, or at least those who order over a certain amount. The Fire is really an order interface and scanner, after all, one that’s stowable in a purse or backpack. It’s brilliant, and a potent threat to those it’s used against. 

  • jwikert

    You bring up another approach Amazon could use for Fire giveaways: Commit to a minimum of $X of additional Amazon purchases over 2 or 3 years. If you don’t achieve that level Amazon bills you for the full price of the device. Maybe that’s the model they’ll offer when they start selling Amazon-branded cell phones too.

  • Buddy Scalera

    It’s hard to imagine a future where these devices remain at such high prices. The cost of manufacturing has dropped significantly.

    Looking forward, it would probably be public schools that begin to buy these devices in bulk. Amazon already gives certain educational discounts and wants to be in the digital textbook market. I’d expect these almost-free devices getting into the hands of students before anything else.

    Buddy
    http://www.wordspicturesweb.com

  • http://profile.yahoo.com/Z2MGM7ZPH7FT73XMLZKRSL6AHA Dinkford Bradley

    I’m thinking “Amazon Prime +” Pay more per year, get more all-you-can-consume e-content.

    It seems like Amazon’s goal is to become one big subscription service. I can almost see them offering subscriptions on physical products. Oh, wait, they have that already…

  • http://twitter.com/PeterTurner Peter Turner

    Forgive me for being dense, or at least ignorant (as hardware isn’t my turf), but why is the sale of the hardware all that significant for Amazon if their APP provides access for its customers on any tablet? At some point, doesn’t the UX of the APP and eCommerce site itself trump hardware?  

  • jwikert

    @google-82c2830955439c99bc18a2b5fce18b55:disqus, I think you’re right. Even if Amazon doesn’t offer free devices to the general public they could also start off by making deals with certain verticals.
    @yahoo-Z2MGM7ZPH7FT73XMLZKRSL6AHA:disqus, I hadn’t thought about a tiered approach. The way you describe it Amazon could build this out as an experiment without jeopardizing the momentum of the existing Prime model.

    @twitter-20198448:disqus, I think we’re saying the same thing. IOW, the hardware itself is a commodity and could be treated as nothing more than a loss leader gateway to a new future revenue stream for Amazon. Those devices still cost money to make, of course, but Amazon could easily offset those costs with that future revenue stream. Sounds like a great way to lose money, right? It is…in the short term. But as time goes on and more consumers are part of the Prime program you can bet Amazon will find a way to squeeze out even the tiniest of profits.

    I like to think back to the first few years of Amazon. Jeff Bezos kept telling investors to relax about the ongoing losses and scoffed at analysts who said they’ll never make money. That was during their brick-and-mortar build-out, if you will; they were in the midst of creating the physical infrastructure required to serve their original customer base (book buyers, mostly). We’re now in Amazon Phase II, if you will, which is focused on the digital build-out. The goal here is customer acquisition and the investment is in devices which can play Angry Birds but will also be used to order all sorts of products from Amazon.

  • knukelhed

    Poloriod started out by giving free camers to everyone with promises of “instant pictures”.  The catch was you had to buy the moderately expensive film.  People got hooked. A free Kindle Fire isn’t as crazy as it sounds.

    • xphoto

      and look where they are today :)

  • http://www.thenetworkgarden.com hypermark

    Hi Joe, 

    FWIW, in ‘Amazon’s Prime challenger to the iPad,’ I essentially argue that Prime + Kindle Fire is all about locking users into the totality of the Amazon Way in the same way that iTunes + iOS locked users into the Apple Way. 

    After all, tablets are simultaneously access point, shopping cart and media consumption point, and Amazon wants to be the only shopping cart you will ever need. 

    Plus, Amazon, like Apple, groks market segmentation in a way that few other tech-oriented companies do. Hence, I think your logic is sound.

    Here’s the full piece, if interested: http://radar.oreilly.com/2011/09/amazon-kindle-table-prime-ipad.html

  • http://radar.oreilly.com timoreilly

    I totally agree with your thinking here, Joe.

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