Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Why Is, Inc. (AMZN) Dropping Kindle Fire Prices?

Last week,, Inc. (NASDAQ:AMZN) announced that it was reducing the price of its Kindle Fire HD 8.9-inch tablet from $299 to $269, while also cutting the price of the LTE version from $499 to $399. In the press release, Amazon stated that the launch of those tablets in Europe and Japan allowed the company to increase production volumes and therefore lower prices. However, this announcement should be taken with a grain of salt. It is much more likely that weak sales of the 8.9-inch Kindle Fire devices led to the price cut. While Amazon has generally tried to sell its tablets at cost, the 8.9-inch devices were previously priced to be profitable. With the failure of that strategy, Amazon seems to be reverting to its primary strategy of pricing tablets at cost and hoping to sell content at a profit.

Credit: Amazon Kindle Fire by IntelFreePressWho wants a $500 Kindle Fire?
Other vendors, such as Motorola (Xoom), Research In Motion Ltd (NASDAQ:BBRY) (Playbook), and Hewlett-Packard Company (NYSE:HPQ)(TouchPad), have previously tried to compete with Apple Inc. (NASDAQ:AAPL) in the upscale tablet market. Each of those would-be iPad competitors flopped at the $499 price point. Even at greatly reduced prices, none of these tablets were able to come close to the iPad’s sales volume.

Despite this harsh lesson,, Inc. (NASDAQ:AMZN) decided to attempt a $499 tablet last year. The highlight of Amazon’s high-end tablet was a 4G LTE modem, and an option for customers to buy a discounted $49.99 basic data plan for the first year. Amazon also introduced an 8.9-inch Wi-Fi version of the Kindle Fire HD for $299. The Kindle Fire HD 8.9-inch began shipping on Nov. 15, with the LTE model shipping the week thereafter.

As early as December (one month after the launch of the Kindle Fire HD), analysts began warning that demand for the 8.9-inch Kindle Fire models was very weak. One analyst estimated that, Inc. (NASDAQ:AMZN) sold 6 million tablets in the holiday quarter, with most of those being the $199 Kindle Fire HD 7-inch. (Amazon has not released official sales statistics for the Kindle Fire tablets.) While some analysts had expected the new Kindle Fires to steal market share from Apple, the reverse seems to have occurred. Apple introduced the iPad Mini shortly after the Kindle Fire HD launch, with a starting price of $329. With a 7.9-inch screen, the iPad Mini is in between the two Kindle Fire HD size options. Apple reportedly expects to sell 55 million iPad minis in 2013. The iPad Mini’s runaway popularity suggests that customers comparing it to the Kindle Fire HD 8.9-inch are overwhelmingly willing to sacrifice on screen size (and pay an extra $30) to get the iPad’s superior overall experience.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.