Amazon keeps pressure on iPad with new Kindles
What did Jeff Bezos do during his summer at Amazon's Silicon Valley lab? He wasn't just putting the finishing touches on the new ultra-affordable Kindle Fire HDX tablets, which the company unveils to the world Wednesday.
No, in trademark Bezos fashion, he spent a lot of time focusing his senior executive team on the future. He told CNBC he ran three all-day book clubs.
The books, he said, "are kind of like skeletons that we can end up using to talk about the business... what's going to happen in 2014, what's going to happen in 2015… What we're announcing today, those are the things we were talking about a year ago and two years ago."
(Read more: Bezos: New Kindle won't make money, and that's OK)
For the rest of 2013, Amazon seems content disrupting the tablet market. Wednesday, the company lowers the price of its entry-level Kindle Fire HD tablet to $139 — dangerously close to "impulse buy territory." Amazon also takes the wraps off of the Kindle Fire HDX, which comes in 7-inch ($229) and 8.9-inch ($379) sizes. This year, the standout features are strikingly bright, high-resolution screens – sharper than today's iPads – and "Mayday," an entirely new take on customer support.
With the new Mayday feature, customers will be able to tap the screen and summon a support rep who can remotely draw on the Kindle's screen, pointing out features and navigation — or even take control of the Kindle and navigate for the user. "We're trying to make it easier for people to stay in control of the technology instead of the technology being in control of the person," Bezos said.
The new tablets mark a telling moment in Amazon's evolution as a computer maker, and these Kindle Fires reveal plenty about his team's ambitions. When it comes to how many he's sold, Bezos still won't spill the beans — "all we say is 'millions.'"
It often takes three generations for mobile gadgets to come into their own. Video recording didn't come to the iPhone until the third release cycle; the Retina display arrived on the iPad 3. With the iPod, version three was the first to get a dock connector and iTunes for Windows.
The same is true for the Kindle Fire. Although Amazon isn't saying it outright, this version feels like the first fully formed articulation of Amazon's vision for a tablet. There's the gorgeous screen, the 8-megapixel camera on the 8.9-inch HDX, and of course Mayday. But perhaps what's most telling is the operating system software behind it all, which is built on top of Android 4.2, also known as Jelly Bean.
Amazon calls the operating system Fire OS 3.0, the first time it's so openly branding its own flavor of Android. When I press an Amazon executive for the reason for the strong software message this time around, he says it's just time — and to me, the whole package indeed seems polished enough to enjoy some extra fanfare. Particularly impressive is a feature that adjusts the contrast of an image on the screen depending on how bright the room is.
Sophisticated or not, will these new Kindle Fire tablets move the needle for Amazon any more than their predecessors? There's plenty of reason to doubt it. Last year's 7-inch Kindle Fire HD cost $199, 47 percent less than the $379 iPad mini — and had a higher-resolution screen, yet the iPad still outsold it. If Apple is true to form, it won't drop the price of the latest iPad mini when it comes out in a few weeks. It will upgrade the screen and add some more bells and whistles. Will the Fire HD do better against the iPad mini now that it's less than half the price?
As I push the point in an interview at his downtown Seattle headquarters, Bezos doesn't seem too concerned. You see, he's not selling these Kindles for cheap because he wants to outsell the iPad. While that would be a bonus it's not the overriding goal.
Bezos is selling Kindles for cheap because he wants people to use Amazon reflexively, and to spend lots of time doing it. "When people have Kindles, they participate more in our digital ecosystem. We have a big ecosystem of content, Prime Instant Video, the Kindle E-Book Store, music, mp3 store, games and apps and so on."
This seems crazy, because we're trained to think that physical stuff should cost money, but it's actually not crazy at all. Google can give away free search and maps because it knows people who use those services will click on ads. The Kindle's like that for Amazon; it's a distribution mechanism for Amazon's services.
The trick with hardware, though, is you can't fix it if you get it wrong. Google tweaks its search algorithm several times a week, and Amazon can adjust book pricing on the fly if something isn't selling. Make a piece of hardware nobody wants, though, and that's a fast track toward losing hundreds of millions of dollars. (Ask Palm about the TouchPad, or Microsoft about the Surface, orBlackBerry about BlackBerry.)
Then again, Bezos is used to playing high stakes. Remember, Amazon.com has a multi-billion dollar logistics operation all built on the bet that people will continue to want what Amazon's selling. "We don't make money when people buy these devices," he said. "We want to make money when people use our devices by buying Kindle e-books, buying movies and TV shows and music and so on."
That last part should be reassuring to investors: One way or another, Amazon is determined to make money.