Amazon's $50 tablet could boost Prime memberships

Could a cheaper tablet give Amazon an edge?

Amazon's Fire phone may have struck out last year, but the company is still swinging for the fences, this time with a $50 tablet.

In a market dominated by Apple and Android, Amazon is once again trying to compete. The online retail giant is slated to release a tablet with a 6-inch screen just in time for the holidays, according to The Wall Street Journal.

While the company was criticized for pricing the Fire phone on par with Apple's iPhone, it seems this new device is taking flak for its lower price tag.

The newspaper speculated that the devices could struggle to gain a foothold because consumers may attribute the low cost to mean lower quality. (Amazon declined to comment.)

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However, Carolina Milanesi, chief of research and head of U.S. business at Kantar Worldpanel, said that in the U.S. market, Amazon's Kindle Fire has done better than any other tablet vendor within the Android ecosystem.

Amazon "might be willing to cannibalize some of those sales in order to provide users with devices that offer a wider range of functionalities and, therefore, service subscription opportunity—video, music, shopping—so as to grow brand stickiness," Milanesi told CNBC.

In this scenario, the device is no longer the big purchase for consumers. Instead, the services and software take the spotlight. In fact, Amazon Prime, which traditionally is bundled as a free trial with many of Amazon's devices, costs nearly double the $50 tablet.

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With Apple likely to announce new versions of its already popular devices Wednesday, Amazon could face some potentially daunting problems.

"You've got your audience that will go after whatever the latest Apple products are and I think it's a slightly different group," said R.J. Hottovy, a consumer equity strategist at Morningstar. "I think a lot of times these cheap tablets are almost for secondary tablets or people buying tablets for their children or first-time tablet users who have never had one before."

Hottovy, like Milanesi, noted that Amazon's focus is not on competing with Apple, but bolstering its own ecosystem. The company is not likely to make a significant profit on tablets, but sales could cause an uptick in Prime memberships and service users.

"That's the key question right now. What kind of demand is out there for Amazon's hardware products, particularly ones that are a little bit away from the core business?" said Hottovy.