As appealing as an iPad is, many people in these tough economic times have held off on spending $500 for a tablet computer. That's a big reason why the Kindle has remained a hot seller in the age of the iPad, defying early predictions that the iBooks and Kindle apps on the iPad would turn the Kindle into a fringe device.
Indeed, the original Kindle was not a fringe product. Amazon won't disclose Kindles sales figures, but analysts estimate several million have sold, thanks in good part to its $139 price tag (now reduced to $109, or $79 with ads). The Kindle Fire is selling for $199 -- $20 less than it reportedly costs to make.
With the Kindle Fire, Amazon is betting that people who see a tablet as an entertainment device might think $500 is too rich, but $200 is worth it. Early indications validate that: More than 250,000 pre-orders were placed for the Kindle Fire in the first five days, a pace that Cult of Android reckons is close to the iPad 2's launch.
When the Kindle Fire launches, it will inevitably eat into Apple's share of the tablet market. But that won't necessarily mean it's slowing Apple's sales of the iPad. The Kindle Fire is setting up camp at the low-end of the market, leaving the high-end for the iPad. And with a robust offering of content-rich tablets at both ends of the market, tablets could become a device as ubiquitous in homes as the TV is today. The overall industry could see growth accelerate -- the proverbial rising tide that will lift sales at Amazon and Apple alike, boosting both firms' ecosystems.
For Apple, the concern is more likely to surface a few years down the road. Apple will be pushing to maintain its leadership without Steve Jobs, and maintaining the iPad's allure as a high-end tablet will be grow harder in time (the iPhone 4S announcement left some convinced this is already happening in smartphones.)
When markets mature they become commoditized over time. This happened in the PC industry: What were once features exclusive to premium products migrate slowly down to the lower-end of the market, and price becomes the paramount factor for consumers. When that happens, the high-end gets smaller, becoming a niche.
Apple's Macbooks have given it a lucrative and growing position at the high-end of a PC market where most of the machines sold are commodities priced at a several hundred dollars. For the next few years, the iPad will do the same in the tablet market. But once tablets become low-priced commodities, Apple will have its work cut out for it to retain the iPad's innovative allure. That's when it'll have to pull the next big thing out of its hat.
