Much of the talk in the past few months has been about Amazon’s Kindle Fire and how this will impact the Apple iPad and the 7 Dwarfs, which is what I call the other tablet products on the market – the RIM Playbook, Motorola Xoom, Samsung Galaxy, HP TouchPad, Sony Tablet, Barnes and Noble Nook, and Toshiba Excite. I borrow this reference from the mainframe computer industry in the 1960’s, which was affectionately called IBM and the Seven Dwarfs.
Ever since it was introduced, the Kindle Fire has been receiving a lot of media attention. Many have been focusing its product features – what it has or doesn’t have. Others have been focusing on the Price – the fact that the Kindle Fire is being listed at $199 – $300 below most of the others (with the exception of the fire sale price of $99 on the HP TouchPad). Many believe that the Kindle Fire is being sold at a loss. Most recently, the media attention has been zeroing in on the fact that the Kindle Fire has very quickly grabbed a dominant market share of the Android-platform tablet market.
Why would Amazon sell the Kindle Fire at a loss?
Amazon appears to be selling the Kindle at a price below its cost because it is employing the Gillette product strategy of giving away the razor and selling the blades at the same time it is using a loss leader pricing strategy to rapidly grow sales and market share. However, the real objective is not the Kindle product or its price. It is distribution. The Kindle Fire is a device to drive business to Amazon’s store and away from other online stores, such as iTunes/iBooks, Google, Barnes & Noble, etc. Of course there are differences in the stores. Amazon sells just about everything and Apple is more focused on digital entertainment and education (books, movies, TV shows, …). The Kindle fire is also not positioned directly at the iPad (at least for now) since just about everyone that has tried that approach has gone down in flames, with the iPad currently commanding between 55% and 61% of the market. Instead, the Kindle Fire is both an offensive and defensive move to drive digital business away from other stores and toward Amazon. Every purchase on iTunes and iBooks is a sale that Amazon does not get. Conversely, every sale on Amazon is money that does not go to Amazon’s competitors.
The Real Objective of the Gang of Four.
Eric Schmidt, Google’s Chairman, coined the phrase the Gang of Four in reference to Amazon, Apple, Facebook, and Google – the companies he believes will define the Internet economy from now into the future. Notice the word “economy” is used. If you really read between the lines, it appears that this “Gang” is really striving to turn themselves into banks as Warren Buffet and IBM did with their businesses. Once you have a bank you have the cash to earn interest, invest, and do all sorts of wonderful things. This seems to be the real focus of these titans, and it will be interesting to observe all the moves they make to progress toward that goal.
Real banks are driving consumers to these alternatives.
The Gang of Four (GOF) are creating alternative forms of money and payment systems that will enable consumers to easily purchase whatever they want using on GOF mobile devices and Internet destinations. PayPal and other online banking alternatives have also been attracting users with more convenient ways to pay bills and manage money. If the big banks are not careful, they will drive more and more customers into the arms of these competitive alternatives. This appears to be where the battle is headed. The Gang of Four will continue to find ways to cut out the “middle people,” deliver greater value, and make more money.
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