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Moneylife » Companies & Sectors » Sector Trends » Amazon turns the heat on Apple with Fire

Amazon turns the heat on Apple with Fire

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Anand Datla | 20/02/2012 11:23 PM | 

The litmus test of the newly-acquired market presence for Fire will come in the next two quarters as Amazon faces off against the arrival of Windows 8 tablets and the much anticipated iPad3

Apple might be beginning to feel the heat from Amazon, with the first signs of real competition emerging from the brisk sales of Amazon Fire in the final quarter of 2011. Amazon seems to be leveraging its well-oiled logistics machine and competitive pricing to finally mount a credible threat to the crushing dominance of Apple in the tablet market. The Seattle-based e-commerce giant shipped 3.9 million units during the fourth quarter of 2011 to garner an impressive 14.3% market share as per a recent study by IHS iSuppli. The stellar debut of Fire helped Amazon leapfrog a host of competitors who have collectively struggled to compete with Apple’s iPad since its launch in April 2010. If the trend holds, we could see the emergence of a first real threat to Apple’s incredible dominance of the tablet market.

However, it must be acknowledged that Apple’s iPad shipments faced a certain degree of cannibalisation from the iPhone 4S (37 million units in Q4) and the anticipation of a third version of the tablet later this year. In all Apple sold 40.5 million tablets in 2011, up 168% over the 15.1 million units in 2010, helping expand the fast-growing market. Amazon (6%) sneaked into third place, just behind Samsung which held on to second position for the year with sales of its Tab touching 6.1 million units for a 9% share in the market.

Another impressive development has been the emergence of Barnes & Noble’s Nook which managed to ship 3.25 million units in the year, for a 5% market share. The relative success of Fire and Nook point to the consolidation of value priced tablets as a credible form of competition to the dominant ways of Apple.

Clearly, aggressive pricing has enabled Amazon and Barnes & Noble to play a disruptive hand and upset the calculations of the market. First, they forced competitors such as Samsung, RIM (Research In Motion) and Motorola to slash prices—even forcing some to resort to fire sales to dispose inventory. Second, they leveraged a growing ecosystem of free to use apps to lure the price sensitive customer by offering them an alternative that was priced well.

On the evidence available thus far, one may suggest that Fire and Nook have caused more damage in the Android space more than the iOS market. A true picture will only emerge by the third quarter of 2012—during this time, the intensely competitive tablet market is set to experience the arrival of iPad3, Windows 8-based tablets and an increase in tablets on the ARM architecture.

While many analysts believe Windows 8 could help vendors mount a fresh challenge to Apple, the evolution of ARM into the tablet product will enable disruptive pricing strategies. “Although several processor architectures could be used to power tablet SoCs, the rich software ecosystem of the ARM architecture built around smartphones is proving to be a key differentiating factor," said Jim McGregor, Chief Technology Strategist for In-Stat.

In an earlier report this January, iSuppli swam against the tide to express optimism that Nokia is set to revive itself and catalyse the rise of Windows phones. They suggested that driven by instruments such as the Lumia 900, Windows phones would succeed in displacing the iPhone from its position by 2015. If a similar trend were to take play in the tablet space as well, 2012 could be a watershed year for the lucrative tablet market.

With a slew of launches planned for the rest of the year, these are interesting times for the market. All eyes will remain fixed on the space to see if the disruptive influence of Fire and Nook can continue to hold centre-stage and build on the momentum of their debut. The litmus test of the newly-acquired market presence for Fire will come in the next two quarters as Amazon faces off against the arrival of Windows 8 tablets and the much anticipated iPad3.

It is game on in the tablet market and 2012 could turn out to be year when the market finally starts mounting a credible challenge to the monumental dominance of Apple.


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