Would Someone Besides Amazon Build a Kindle?

Published on Author Eli Fennell

Amazon’s Kindle Fire is a smashing success.  We can’t be sure how many units have sold, but somewhere between three and five million units for all Kindles seems a good guess.  If they had moved move than five million they would probably be saying so.

Amazon, like Apple, doesn’t give out device activation figures or report actual sales of their devices, so the Kindle Fire has probably sold somewhere between two and three million units at my best guess, and with the holidays ending we shouldn’t expect those numbers to continue at holiday rates.

I’d guess the estimates are right that Amazon may sell up to five million units in total, although these figures could be affected by any number of factors like Amazon making a new tablet, cheaper competition in the market, and more.

As to how much revenue Amazon will generate from these devices, it’s probably a low-margin game overall, but then so is Google’s Android.  If cheapness was your selling point, I don’t see all of your users being big spenders, and the Kindle Fire likely sells at a loss of $2 per unit, meaning $10 million over five million units.

Considering the initial outlay for the devices and software, the loss is actually much greater than that.  I don’t doubt they’ll make it back and then some, but you have to factor that in.  Google avoids paying any outlay for the devices themselves, except their Nexus series.

Like the Android it is based on, Amazon has released the open source code for the Kindle Fire, and it’s possible another hardware vendor could take an interest and build the next Kindle device, saving Amazon that initial outlay and adding more hardware weight to their product.  Some Kindle Fire fans have suggested this possibility with a straight face.  I think it’s difficult to imagine, though.

Amazon’s biggest strength, and greatest weakness, as a hardware vendor is being such a powerful retail force.  They saw a market who price range was below any tablet on the market, and they built a cheap tablet and made it cheaper by selling at a loss.

Given the power that the Kindle Fire has had to lock users into the Amazon ecosystem, Amazon may just make a habit of doing this from now on.  Would a hardware partner allow themselves to be forced to sell at a loss to generate revenue primarily for Amazon?

Could it create confusion between the real Kindle devices and third-party knockoffs?  Apart from the Nexus series there is no official Google Android, and very few consumers really understand this, but they do understand that Amazon makes their own devices.

Might Amazon use their retail prowess to steal the customers of these devices the next time they buy a device, using the Kindle itself to promote it and their prowess to sell something cheaper than their partners?  Yes, I think they probably would.

And what about patents?  What if Amazon devices start running afoul of patent infringement?  Eventually they will, and Amazon isn’t even in as strong a position to defend itself as Google and its Android partners were when these issues arose.

The Kindle Fire is a very basic device, a content consumption device with capabilities comparable to an iPod but much less advanced than most tablets.  That is part of why it sells cheap and has been a success.  But cheaper tablets with more advanced features are hitting the market, and eventually Amazon will have to incorporate more advanced and potentially patent-infringing technologies.

How would an Amazon hardware partner feel about being the ones to suffer the infringement claims?    And Google and its partners will not be there to bale them out, believe that.  If the goal is low margin to begin with, then anything that adds to that cost makes it less worth it.  The revenue stream of a Kindle is effectively owned by Amazon, unlike an Android, which can be infinitely monetized and even rebranded (as it was by Amazon) and is still, in essence, an Android.

There’s also the question of just how success the Kindle brand can become before it places Amazon, now a retail, software, and hardware vendor, in the unenviable cross-hairs of regulators or possible anti competitive or anti trust aspects to a business with such scope across both the physical and electronic sectors.  And how long  will it be before some new tablet becomes the media darling?  Remember, it used to be the iPad, the media and consumers can both be pretty fickle when new things come along.

This is not to say it won’t happen, just that it won’t be without issues, and may not even make sense for Amazon, for whom the Kindle is a brand of signature Amazon products, and any confusion that it might have been made by someone else could lead to its being perceived a knockoff.  I’m just not really sure they want to outsource the brand, because then they’d risk the same problem as Android: rebranding, fragmentation, inconsistency across devices, etc…

No, I think they’ll live quite happily with a few million sales of each, and eventually tablets will evolve, as other sectors of the mobile market, beyond content consumption devices.  A lot of people bought the iPod Touch, and it helped make the Apple mobile brand famous, but it was the later smartphone and tablet they made that matured the market beyond mere web and content consumption.

Cheaper tablets with advanced more advanced features are already a reality, and eventually more consumers will be willing to spend more on a high tablet, when they see them more as something they need then something they want.

The Kindle line will no doubt continue to do well, but we already see the low end they stormed into getting more competitive, especially in markets where Android has market presence but the Kindle brand doesn’t.  1.4 million $65 Akash tablets have been preordered from India (though not all of the orders were necessarily from Indians), and the $99 Ainol Novo7 appears to selling like hotcakes in China and seems to be in some demand abroad as well.  They’re unlikely to shoot for the high end, either, until someone else can prove it is worth it to compete with Apple there.

For now price and content are major selling points in the market and this is where Amazon is strong.  Like the Kindles before it, the Kindle Fire and all subsequent Kindles will find a place in the market, but they’re likely to remain signature Amazon products rather than to achieve wide penetration on devices made by third-party manufacturers, for whom working with Amazon could prove problematic, and not working with them risks either making the product appear almost like a counterfeit, losing their retail power to move items, and more.  For Amazon, it also risks creating confusion, competition for their own devices, loss of revenue stream, loss of control over the brand, and undermining their vertical integration approach.