Amazon’s Subsidized Tablets Borrow from Wireless Carriers

Will any margin remain in selling standalone computing hardware?

I want to bet against Amazon – not because I don’t like the company – I most certainly do. But because coming out with a new line of tablets to take on Apple is not turning into a successful strategy for the rest of the tech world. Both HP and RIM are feeling pain – even though I might add the Blackberry Playbook is a very solid tablet.

When Amazon released a slew of devices today from $79-$199 I was concerned that this is yet another case of a tech company going up against Apple and getting slaughtered. It is worth pointing out however that the HP tablet didn’t really start selling until the price was dropped to $99.

But back to Amazon – I didn’t think the original Kindle would be very popular and I was wrong. Amazon was way ahead in the cloud space and betting against them has proven to be a stupid move.

As points of reference, TMC’s Carrie Schmelkin has the details of all the new Amazon tablets and TMC’s Tom Keating has some thoughts on why these products will have trouble being successful.

Any way you look at it, purchasing a Kindle Touch tablet starting at $99 is a good value. As I mentioned this past April in regards to the Amazon Kindle, $99 is the magic number. And to get an iPad competitor, the Kindle Fire for $199 is an immediate savings of $300 over the cheapest iPad 2 on the market. Tom is right… It is a weak competitor, it has no microphone or cameras but customers will save hundreds of dollars and be able to run Flash websites instead.

One other important point is Amazon Prime, the $79 service which allows free or low-cost shipping and free streaming movies will be bundled with the Kindle Fire for free the first year. Obviously the leading e-commerce company hopes to make money from selling service and is subsequently subsidizing the hardware.

Amazon has the marketing muscle to push these devices out in volume. They will likely sell lots of tablets and suck all the profit out of the tablet and general computing space at the same time.

What we are seeing here is subsidization of tablets like we have seen for years in the cellphone space. The only difference is in this case it is Amazon Prime which is the service, not 3G or 4G wireless. And of course over time Amazon’s cloud and other services will be offered and likely purchased in large numbers as well.

In all this is a smart move for Amazon – a bit risky but I get the sense, it has a solid enough offering to do lots of margin compression damage across the computing and mobile landscapes.

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