Amazon.com have a tremendous set of assets. They have millions of customer accounts. They have a ton of existing relationships with publishers and content providers. Behind the scenes they are one of the leading cloud computing service providers servicing start-ups and established firms alike (including Netflix).  And they have a market leading product — the Kindle — in their arsenal.

Today, their customer facing strategy moved from the PC squarely into the mobile space as the Kindle line-up was significantly expanded. First, they upgraded the current low-end Kindle (with ads and WiFi) only to a very cheap $79 model. I still don’t think Kindles want to be free but there is a clear trend here. Second, they provided a new Kindle — the Kindle Touch — with a touch screen interface that costs $99 (WiFi) and $149 (3G). The latter incorporating their revolutionary pricing model for 3G access — that is, bundled with the device so that consumers face free usage. To be sure, at those prices, the Star Trek Next Generation image of Captain Picard with a desk littered with slates becomes affordable. Put simply, it is no longer a given that people will own one Kindle they carry around. And with Whispersync technology that just isn’t necessary.

The final product was a direct play at the iPad. The new Kindle Fire is Android based but with innovations. It is all tied to Amazon’s own stores for books, video, music and apps. It leverages Amazon’s cloud position. And, just one more thing, it costs only $199. How do they do that? Only 8GB of storage on the device. Amazon are betting that people will be happy not to carry their content around and rely on cloud access. And from WiFi (no 3G, yet). That is a big bet.

To be sure, that is a bet Apple are moving towards too with iCloud. But as the ill-fated Google Chrome netbook shows, we have a long way to go before access is ubiquitous. If you are on a long international plane flight, it will be hard to leave your data behind.

But where is this heading? The Kindle Fire is targeted right at Apple and the iPad but it is of lower quality and has fewer features. This is a story that has emerged before for Apple. But each share the ability to leverage off application, video and music sales. Amazon also has books while Apple likely must stand behind Apple in that department. And each are now heavily invested in cloud services for which the outcome is far from clear. Finally, Amazon will rely on Google for operating system upgrades although it does appear to have developed its own browser (Amazon Silk) to leverage the cloud again.

What is remarkable is that a decade ago, Amazon, Google and Apple could not have looked further apart in the digital competition space. Amazon was invested in the physical world. Apple dabbled in online music and Google was in search. Now, they are inter-locked and in head-to-head competition from the cloud to the customer. It’s amazing to watch.

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6 Responses to Amazon’s pricing play that leverages the cloud

  1. Brett says:

    The “Wi-Fi Only” plus “Only 8 MB of memory” is a major turn-off for me. The former greatly limits where you can access your device (particularly when you’re traveling), and the latter means that it’s more limited in use as an e-reader when you don’t have that Wi-Fi Access.

  2. Brett says:

    Actually, belay my point. I misread “8 GB” for “8 MB”. In that case, it’s much more attractive, although Wi-Fi Only is still a major turn-off.

  3. […] good analyses of the Fire that touch on the points I raised above are from Erik Brynjolfsson and Joshua Gans at Digitopoly, a new (welcome!) economics blog focusing on the digital economy. Given the overlap […]

  4. Jesse Kornbluth says:

    Amazon.com = they? In what grammatical universe? Has there been a sudden split and there are now two Amazons? Not to be the usage police, but such a whopper in the first graph of a piece makes it hard for me to continue. Anyway, I have to go to the Metropolitan Museum and see what “they” are up to….

  5. […] wars following Amazon’s announcement of its new “Kindle Fire” tablet this week, economist Joshua Gans writes: What is remarkable is that a decade ago, Amazon, Google and Apple could not have looked […]

  6. […] wars following Amazon’s announcement of its new “Kindle Fire” tablet this week, economist Joshua Gans writes: What is remarkable is that a decade ago, Amazon, Google and Apple could not have looked […]

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