$99 Kindle Fire HD Could Decimate Amazon.com, Inc. (AMZN)’s Competitors

TechCrunch reported Wednesday that Amazon.com, Inc. (NASDAQ:AMZN) was planning to sell a 7-inch Kindle Fire HD for $99 sometime this year. With Amazon taking such an aggressive stance on tablet pricing, what does it mean for the online retailer and its competitors?

Amazon.com Inc. (AMZN)Amazon’s tablet strategy has been built around offering hardware at-cost

Since Amazon.com, Inc. (NASDAQ:AMZN) rolled out the original Kindle Fire back in 2011, the company has pursued a strategy of offering its hardware at-cost. Amazon never gave the official figures for how much it spends on building the Kindle Fire, but third-party teardowns have put the cost of parts right around the price Amazon ultimately charges.

Inline with that sort of strategy, Amazon has consistently lowered the price it charges for its hardware over time. Last fall, when the company debuted the Kindle Fire HD, it lowered the price of the original Kindle Fire by $40. And earlier in March, Amazon cut the price of its 8.9-inch Kindle fire by $30-100 depending on the model.

A $99 Kindle Fire would be the most aggressive price cut yet. In fact, Amazon.com, Inc. (NASDAQ:AMZN) still charges $120 for its Kindle Paperwhite — a pure e-reader that lacks the app capabilities of the Kindle Fire.

Amazon has been able to sell its Kindles at-cost because the company follows a razorblade pricing model. Amazon.com, Inc. (NASDAQ:AMZN) believes that customers who purchase its Kindle Fires will be more likely to buy the company’s digital content: its ebooks, movies, and music. The profit from the sale of this media more than make up for selling the devices at-cost.

Such a cheap Kindle Fire could pressure other Android makers

Despite introducing a $330 iPad Mini, Apple Inc. (NASDAQ:AAPL) continues to charge significantly higher prices for its tablets when compared to Amazon’s offerings. And despite these higher price points, Apple continues to maintain a dominant market position in the tablet space, with over 40% market share.

Instead of challenging Apple, a cheaper Kindle Fire seems more likely to put pressure on makers of cheap Android tablets.

A new entrant into the space is Hewlett-Packard Company (NYSE:HPQ). HP is set to ship a 7-inch Android tablet called the Slate 7 in April. At $169, the Slate 7 will be one of the cheapest Android tablets on the market — $30 less than Asus’ flagship Nexus 7.

After failing with webOS, HP needs to establish itself in the tablet market. With PC sales declining, a strong tablet strategy is necessary to keep HP relevant. But if Amazon.com, Inc. (NASDAQ:AMZN) keeps cutting prices, HP’s apparent strategy — of appealing to the low-end of the market — will be futile. As HP is not in the market of offering digital goods, it won’t be able to subsidize its hardware costs with media sales.

In its review of the Slate 7, engadget writes that “Android lags slightly on that dual-core CPU, but we wouldn’t say it’s any worse than what you’ll experience on other budget tablets.”

It’s clear then that the Slate 7 appears to be made with the budget-conscious in mind. Would a $99 Kindle Fire prompt HP to rethink its strategy?

Game over for Barnes & Noble, Inc. (NYSE:BKS)’s Nook?

Beyond pressuring low-end Android tablets, a cheaper Kindle Fire could prove to be a knockout punch for Barnes & Noble, Inc. (NYSE:BKS)’s Nook division.

When the bookseller reported earnings in February, the company posted a loss and cited slowing demand for its e-books and e-readers. In the earnings call, Barnes & Noble’s CEO stated that “physical book sales will have a longer [life expectancy] than previously anticipated.”

Or perhaps, Barnes & Noble’s Nook division is being bested by Amazon. Localytics reported in January that when it comes to Android tablets, the Kindle Fire dominates. About one-third of Android tablets are Kindle Fires, while only one-tenth are Nooks.

With Amazon’s Kindle lineup handily beating Barnes & Noble’s Nook, a cheaper Kindle Fire could relegate the Nook to irrelevancy once and for all.

Amazon looks committed to its strategy for the long-haul

If Amazon.com, Inc. (NASDAQ:AMZN) does roll out a cheaper Kindle Fire, it will show that the company is fully committed to its cheap tablet strategy. Other tech companies, like HP, lack the media business to offset the lost profits, so Amazon’s continued domination of the low-end tablet market seems assured.

Barnes & Noble has the media business to support its Nook, but the device seems to be floundering compared to Amazon’s Kindle.

If Amazon continues to pursue such a strategy, its competitors are going to have to find ways other than price to compete.

The article $99 Kindle Fire HD Could Decimate Amazon’s Competitors originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.

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