DBST: Case# 4

Kindle Fire:
Amazon’s
Heated Battle
for the Tablet
Market
Problems at hand
Positioning
How should Amazon modify
the positioning of the device
in response to the new
entrants in the tablet market
since its launch?
Targeting
What was the most
promising target market for
the Kindle Fire, and how
should it be positioned
against competing
products?
Profitability
Would revenues and profits
from commerce and content
justify selling the hardware
at cost?
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 Timeline
Amazon Kindle & Competitive E-Reader’s Journey

Launch of Nook Color,

Launch ofNov
Nook Color,
2010
Nov 2010
Start of Development B&N’s Nook launch 2nd Gen Kindle price cuts
Start of Development
2006 B&N’s Nook launch
Oct, 2009 2 (due
nd
Gen Kindle pricelaunch)
to Nook’s cuts Launch of iPad 2, Mar
2006 Oct, 2009 (due to Nook’s launch)
late 2009 Launch of iPad
20112, Mar
late 2009 2011

Kindle Fire preview, Launch of Nook

Kindle Fire
Seppreview,
2011 Launch
Tablet,ofNov
Nook
2011
Launch of Kindle Nov, Sep 2011 Tablet, Nov 2011
of E-Ink Tech

Launch of Kindle
2007 Nov, Agency based pricing by Launch of iPad, April
Advent of E-Ink Tech

2007 Agency based pricing

publishers, by
late 2009 Launch of 2010
iPad, April
publishers, late 2009 2010
1997
Advent1997

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Case Facts
Condition after launch of Kindle Fire Q3 2011 – Stock dropped by 40$ due to concern of the product being sold
at a subsidy
• Nearly 5 million units • Amazon had always • 1st Gen Kindle offered • Amazon tried
sold & half of non-Apple been at the fore-front of more than 100,000 e- diversifying the Kindle
tablet market share innovation – online books along with product line by
captured cloud services, prime optional subscriptions to introducing bigger &
• E-books world wide subscription service auto-updatable powerful Kindle DX
sales grew from 1% to • Kindle was differentiated newspapers, magazines • Kept updating the
15% of all books in through browser, access & blogs product’s cost to match
2012 to online content • This created a complete the competitors
eco-system eventually leading to
Kindle Fire

When Kindle’s development was started in 2006, the total e-book market was 3$ million which grew
exponentially to $1 billion by 2011 just for Amazon’s revenue from e-books.

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Case Facts
As more and more competitors entered the market, especially in 2011 (year of the tablets - 21 products were
revealed along with iPad 2) Kindle’s position in the market was threatened.

• Jeff Bezos wanted to

• The Business Model was •
make the Kindle the changed to depend on
future of e-commerce customer’s dependency
of Amazon’s ecosystem
• So, a volume game was
• All the services including
being followed which led the popular prime
to a price war against delivery system added
Nook to the revenue of other
business units of
Amazon
They do however have • There was no time to
Apple to thank which rest on their laurels
opened up the tablet though – Jeff knew this
market through its iPad • This was just the
beginning of the digital
• Just in 2010, 15 million era as by Q4 2011,
iPads were sold nearly 25% of U.S
Internet users were
estimated to have some
sort of a tablet device

Kindle Fire was being positioned against premium product iPad, similar device Nook through its own
differentiators – much more affordable, humongous online content, fast sync across devices through apps and
access to entire Amazon’s ecosystem.
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 Target segments of Kindle Fire: Media Junkies

Bargain prices and huge selection: Amazon already attracted avid consumers of media because of its bargain prices for content and its huge selection

Evolution in digital age: The “media junkie” market had evolved in the digital age to rabidly consume multimedia from numerous channels simultaneously. Amazon
through Kindle presented an alternative to existing streaming services such as Hulu and Netflix

Competitive pricing: Media junkies were price conscious and Amazon fit this niche well because of its extremely competitive pricing on its music, video, and reading
content.

Long tail: Kindle Fire was suited for both downloading popular content through prime instant streaming feature and for purchasing obscure titles that the long tail
demanded through Amazon store

Affordable one-stop solution: Media junkies who desired having tens of thousands of books, magazines, music, and movies in one affordable handheld device, Kindle
Fire would be ideal
6
 Target segments of Kindle Fire: Children and
Mobile Gamers
Click icon to add picture

Relatively untapped market: Very few computers or devices had been specifically made to appeal to children

Heavily influenced purchasing decisions of their parents: 30% of the apps on tablets and smartphones were downloaded for their children. Children under the age of
12 used tablets in the households frequently to play games

Growing gaming market: Gaming on tablet and smartphones represented fastest-growing market valued at $57 bn in 2009. Gaming market was thus a high-value
prize and an untapped market for Amazon.

Rugged: Gorilla glass, better battery life, rubberized coating and hand friendly; All this allowed rough use by children and could bring in more confidence among
parents
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 Target segments of Kindle Fire: Higher Education
Click icon to add picture

Relatively untapped market: By 2012, the more than $10 bn new-textbook market had remained relatively untapped by digital alternatives

Tech-savvy students: Possibility of adoption of the devices was likely with adequate content being made available

Low price: Value proposition of reduced-price textbooks were attractive to the students as textbooks were very expensive

Physical load: Textbooks were inconvenient as they were considerably larger, as a result students faced the problem of heavy backpacks

Huge existing customer base: Amazon was the largest online seller of new textbooks and thus had a large customer base to advertise to. Thus, Amazon could
leverage its national brand and partnerships with publishers to bring e-textbooks to the entire U.S. market
8
 Who should Amazon target?
Challenges with respect to Media Junkies:
They preferred high-resolution screen and superior graphics chipset.
Kindle Fire’s small screen was a problem.

Challenges with respect to Children and Mobile Gamers:

Slower processor, smaller screen, and limited memory capacity weakened Kindle Fire’s perception
as a gaming platform.
Third-party developers might be hesitant to create special versions of their games exclusively for
Kindle Fire.

Challenges with respect to Higher Education:

B&N had already partnered with several universities to offer its Nook Color e-reader.
Smaller screen was also a significant hindrance to publishers.
Digital textbooks meant Amazon had to develop capability to handle large figures, graph display,
complex equations etc.

Considering the advantages and challenges of each target segment, we opine that
Amazon should target the ‘Media Junkies’ segment and the ‘Children and Mobile Gamers’
segment.
9
How should kindle position relative to ipad and
other tablets? E-readers?
Kindle Fire Vs Ipad 2

Ipad 2
Kindle Fire Price: $499
Price: $199 Memory: 16GB, 32GB, 64GB
Memory: 8 GB Screen Size: 9.7 inches
Screen Size: 7 inches Battery Life: Upto 10 hr
Battery Life: Upto 7.5 hr Camera: Front and Rear
Camera: None Wifi Support: Yes
Wifi Support: Yes Operating System: IOS
Operating System: Android

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Startup OR
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10 10
Overall Findings

Amazon Kindle Apple Ipad 2

➔ Relatively low price tag
➔ Relatively low price tag.
➔ Access to the Amazon
➔ Access to the Kindle Store, Barnes
AppMarket.
& Noble Nook Books site, and
➔ Had issues related to lagging
Apple Book Store.
display, shorter battery life,
➔ Display size and resolution are
smaller feature-set complaints.
great for watching movies.
➔ Came with one-month free
➔ Twice the processor speed than
Amazon Prime Subscription.
previous Ipad
➔ Preloaded with Google Android
➔ It was lighter and thinner
Mobile OS.
➔ High resolution front and back
➔ Brings together the entire
facing camera to facilitate video-
Amazon ecosystem - amazon Web
conferencing
Services, Prime, Kindle, Instant
Video Streaming etc.
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How should
kindle
position
relative to
ipad and
other tablets?
E-readers?
Changing consumer Trends

Drivers of Growth for

e-Reader devices and
Content

Source: Forrester Research, Inc 12

Market share of Top Five Tablet brands, Q4 2011

Shipments (in million)

Others; 3122
Asus; 612

B&N; 1920

Samsung; 2140

Apple; 15430

Amazon; 3885

Apple Amazon Samsung B&N Asus Others

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Perceptual Mapping of e-Readers Amazing
features but
Nominal Price Improved Design and More features expensive
and Good
features

Ipad 2

Android Ipad
Tablets Kindle DX

Lower Price Higher Price

Kindle Fire
Nook Too
Low Price and expensive
Simple features for simple
Ilead by iRex features

Sony Reader

Simple Design and Less Features 14

Gartner’s Magic Quadrant
Challengers Leaders

Executes well today or may

dominate a large segment, but Executes well today and is well-
does not yet understand market positioned for tomorrow
situation Amazon Apple
Samsung

B&N
Ability to execute

Understands where the market is

Focuses successfully on a small going or has a vision for
segment, or is unfocused and changing market rules, but does
does not out innovate or not execute well
outperform others

Asus

* Chart prepared based on

Niche Players results of Q4 2011
Visionaries 15
Completeness of vision
Positioning of Kindle Vs Ipad 2 and other E-readers

OEMs such as Samsung, Motorola, LG, Qualcomm brought touchscreen

based smartphones to market. Apple ported the iPhone user experience
to the tablet. Amazon Kindle Fire entered the market as a brand extension
to Amazon’s nucleus brand.

Kindle Fire is not a direct competitor of Apple Ipad 2 because of its

smaller display, lower memory and battery life. Moreover, Apple’s
expertise lies in computer equipment designing and enjoys a loyal
customer base.

Amazon differentiates itself with its Silk browser, which enhances the
experience of a limited device, and therefore is a complementary
service to Amazon’s core business. Amazon’s key strength lies in the
field of online retailing and digital content supply.

Apple’s iPad is charged at $499 targeting the high end of the market
spectrum, whereas Amazon Kindle Fire is available to a wider audience
with its $199 price tag. Since the target segments of both products are
different, they should essentially enhance and develop their own
consumer markets.
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 Amazon Kindle Fire Positioning Strategy
01
Establish as a
differentiated
Product
It can differentiate itself from
its competitors on the basis of
being a complementary
service to Amazon’s core
business and portray itself as
an innovative company that
does not shy away from
addressing latest market
trends and offers a good
balance between features and
price.
02 03 04 05
Build an Direct Stick to Cost Leverage e-tailing
ecosystem competition to Leadership experience and
iTunes and iStore Value Chain
Kindle can become a Primarily being used for Ipad 2 due to its powerful Through its global
major tool to integrate data consumption, performance and exclusive distribution network, well
customers into the Amazon Prime, cloud and product experience is a developed business
Amazon ecosystem data streaming offers dominant player which infrastructure, Kindle can
through free-one month direct competition to comes at a higher price. improve Amazon’s equity
Prime subscription, its Apple iTunes, which Kindle should position itself because of efficient,
core cloud offerings and previously did not have as a bargain which is great marketing and delivery
audio and video any competition. for reading books, watching systems. It can also be
streaming content. movies, casual gaming, web used for integration of
browsing for the price Amazon’s retail
conscious consumers. communication.
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Cost Leadership Strategy
There is an opportunity for success

Cheap Fast Volume Repeat

Kindle can be offered at Amazon's global delivery Kindle can eliminate Play on cost leadership,
lower prices through coupled with its cloud traditional publishers and garner greatest market
subscription and subsidy can create a global distributors in the process share and force other
plans. It can collaborate platform for publishing of becoming an ebook ebook readers out of
and partner with books in any language at publisher offering large business.
network operators for a faster pace than its variety through the long
same competitors. tail phenomena.

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 Business Model of Kindle Fire

Wewant
We wanttotomake
makemoney
moneywhen
whenpeople
peopleuse
useour
ourdevices,
devices,not
not
whenthey
when theybuy
buyour
ourdevices.
devices.
Jeff Bezos
Jeff Bezos

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Revenue Stream Model Revenue Stream
Selling Price Music & Movies
Revenue Streams Year 1 Year 2 Year 3 e-Books Incremental Products & Services
Hardware Revenues Impressions Dismiss Ads
Paid Apps
COGS $200 $200 $200
Selling Price 199 199 199
Margin -1 -1 -1
Content Revenues
Music & Movies 120 132 145.2
e-Books 120 132 145.2
Margin 60 66 72.6
Ye a r 1 Ye a r 2 Ye a r 3
Commerce Revenues
Incremental Products & Services 600 630 661.5 Total Estimated Revenue per Device ($)
14500
Margin 120 126 132.3
14000
Advertising Revenues 13500
13000
Impressions 7413 7413 7413
12500
Dismiss Ads 6 6 6 12000
11500
Application Marketplace Revenues Total Estimated Revenue / Unit

Paid Apps 3985 4781 5738 Year 1 Year 2 Year 3

Total Estimated Revenue/Device 12443 13294 14308

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 Kindle Fire is a service,
not a product.

Value Proposition Value chain Revenue stream

Amazon is following Hook & Bait business
model – also known as Razor-Blade model. Basic Product offered Complementary High Margins on
at loss or even free. products are Exclusive complementary
and unique building a offerings.
strong ecosystem
trap.

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Why Kindle Fire is a strong bet for Amazon

Rapidly Growing Tablet Market Ecosystem of Amazon Established trust of Kindle

devices

High Revenue streams through

Focusing service over Product Low price offering
complementary offerings.

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What should Jeff Bezos do?
How will we scale in the future?
• Low price strategy seems to be a
strong value proposition for the
Kindle Fire.
• Amazon can undercut competition
further by reducing price to $149.
• They should not price below $149
as this can cannibalize Kindle e-
book reader.
• They can also offer device on a
annual contract charging higher
price on prime membership.
Recommendations
• They can offer free subscription
of Amazon prime Services for the
first year.
• This will ensure that customers
will be using Amazon services
significantly.
• Resulting in High Revenue stream
through impressions and
advertisements.
• Amazon should focus on building
on B2B relationships with School ,
college and universities to
promote use of Amazon Kindle
Fire.
• They should collaborate more
with content creators focusing
their target customers.
• Include More Quality paid Apps
and Games to attract more
customers and increase revenue.
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Thank
You