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Amazon's Fire Likely to Spread

By Peter Suciu E-Commerce Times ECT News Network
Jul 23, 2012 12:07 PM PT

Amazon is looking to expand its mobile platform with a line of tablet devices, with up to five or six SKUs (stock-keeping units). On Monday, reports surfaced that the retailer -- which is marketing its own tablets as a way to help sell more digital content including movies, music, apps and games -- would likely be available in multiple sizes.

Amazon's Fire Likely to Spread

This move comes as sales of traditional packaged software, including CDs and DVDs, continue to fall, with consumers increasingly opting for digital delivery of content. Amazon is not new to the tablet space, but this multiple device strategy is an interesting move for a company that has traditionally operated as an online mail order retailer.

"I was expecting three but thought there was room for five, particularly if there are 4G options for the two higher-priced models," said Rob Enderle, principal analyst for the Enderle Group.

Amazon did not respond to our request to comment for this story.

One Size Does Not Fit All

The move to multiple devices is a significant departure from the norm in the tablet space, where companies have traditionally limited the options -- at least in physical size. But the fact that Amazon is releasing multiple versions of its tablet devices suggests that a single version might not be the best course of action.

"Despite Apple's approach, which is heavily marketing supported, we aren't a one-size-fits-all market," Enderle told the E-Commerce Times.

"This was demonstrated by the Nexus 7 and Kindle Fire's initial successes," he pointed out. "A line, from a marketing standpoint, is a far [better] way to make sure you can address most of the available market."

Moreover, outside of Apple, no technology company likely has the marketing skills or is even willing to budget to drive people to a one-size-fits-all line, added Enderle.

Fragmentation of the Market

Choice is good, but there needs to be a rationale behind the various options. Too much choice could actually confuse consumers.

"Multiple SKUs aren't bad by themselves so long as they address very specific market dynamics or customer requirements," said Charles King, principal analyst at Pund-IT.

"For example, the difference between a WiFi-only Kindle Fire and one which also supports 3G/4G ties into potential partnerships with wireless carriers," he noted, "and Amazon's assumption that given the chance, consumers will adopt the Fire as a general purpose tablet, much as they have Apple's iPad."

There is also the danger that a vendor could miss the mark with too many options or "slice and dice the market too finely," King added.

The result could be a lot of unmovable product.

"That's why initial launches tend to be modestly limited," said King. "Google's Nexus 7, with just WiFi and two configurations based on memory size, is a good example. If Amazon actually does deliver five to six SKUs, it means the company believes it has developed a much finer understanding of the market than it had last year. If and how well that strategy succeeds will demonstrate the clarity of the company's vision."

Tablet Saturation

The other part of this equation is whether the market can even support as many players in the tablet space, not to mention the number of individual SKUs. But more companies will likely enter in hopes of catching Apple and its iconic iPad, and while the question is whether this is even possible, it does give consumers more options.

"The market for tablets is heating up, because in the next 12 months, the race is on for second place behind Apple and the iPad," said P.J. McNealy, a consultant with Digital World Research. "Microsoft, Amazon and Google's Android devices are all trying to come up with a variety of cheaper tablets with some differentiated features or functions. It will be a great time to be a consumer."

Consumers will have more choices, but the final consideration is whether Amazon is actually making the right move in pushing so many options. It could ensure that there is truly something for everyone.

"This will allow them to bracket the market, which has all of these sizes and resolutions with a single line," emphasized Enderle. "This is the more typical hardware approach, and even Apple followed it with the iPod. The weakness in this approach is that the iPad, which is the only true premium offering in the market, has special services that surround it, which is why Apple, in the 10-inch space, is dominant."

Additionally, just having a similar product doesn't guarantee success. But as a mass retailer that is looking to continue to sell movies and music, it does give Amazon an advantage.

"If it doesn't have the same premium concepts around it, alone it won't get similar volumes -- so Amazon will have to ensure a price advantage," said Enderle. "And since they can subsidize and Apple can't, I'd expect them to price under Apple with a similar offering."

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