Amazon uses 'shock and awe' tactics

Smartphone announcements from Nokia and Motorola last week may not have had the big impact the companies hoped for ahead of an expected iPhone event, but Amazon's unveiling of new Kindles amounted to "shock and awe" tactics for the tablet industry.

Amazon slashed prices, announced dramatic hardware improvements to the Kindle Fire, significantly extended its line-up, introduced new services and expanded the tablet's availability to Europe.

A Kindle Fire upgrade had been expected ahead of an "iPad Mini" launch next month, when Apple is rumoured to be unveiling a tablet with a screen 2in smaller than the 9.7in iPad, thereby challenging 7in tablets such as the Fire, Google's Nexus 7 and Samsung's Galaxy Tab.

What surprised analysts was that Amazon not only defended its turf with an improved Fire, but it also announced a high-definition premium version at aggressive price points and including an 8.9in screen size that would tackle the bigger iPad head on.

The basic Fire will now cost $40 less at $159, undercutting the $199 Nexus 7 and setting a new low price for a tablet among major manufacturers. A high-end $499 version is $230 less than a comparable iPad with 4G connectivity, while the Fire's cheaper data plan would increase savings to $410 over a year, according to Amazon.

While Apple makes most of its money from selling hardware, Amazon's business model is the polar opposite – it is subsidising the hardware in order to sell more content and services.

Such a pricing strategy is likely to cause concern in Cupertino for Apple executives and consternation among other tablet rivals. "We believe the end game is that profitability in tablets outside of Apple will be non-existent given Amazon's aggressive pricing stance," concluded analysts at Sterne Agee in a note.

There are now a dozen different Kindle options, from a $69 eReader to a $599 64Gb 4G Kindle Fire HD. Analysts say this amount of choice could cause confusion among consumers, but it nevertheless represents a strong line-up.

The hardware is as yet untested by reviewers and Apple is still seen as having a lead in its variety of apps, but Amazon's move seems to have established the Fire as the main rival to the iPad this holiday season.

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