In August 2012, Amazon (AMZN) had introduced the Kindle FreeTime Unlimited service on its Kindle Fire line of tablets, directed exclusively towards 3 to 8 year-old kids. The FreeTime concept is innovative, and the only available parental control service for parents when it comes to tablets, proving to be a potential two-pronged attack against Amazon's two competitors -- Netflix (NFLX) and Apple (AAPL).
Amazon competes with Netflix in the content space through its Amazon Digital Video service that is bundled along with the Amazon Prime membership. In the tablets space, Amazon is competing with Apple and other tablet makers that use either the Android or Windows 8 ecosystems, with relatively cheaper high-definition tablets that run Amazon's own flavor of Google's (GOOG) Android operating system.
Amazon is providing a discount for FreeTime service to Amazon Prime subscribers and higher pricing for regular customers (see pricing chart).
This service will allow parents to configure profiles for kids and themselves, and also choose how their kids could use tablets.
Parents will be able to set daily limits and restrictions on content categories like books, videos, games or tablet Apps. Internet browsing and content purchasing capabilities are disabled on the kids' profiles.
How FreeTime Targets Apple And Other Tablet Makers?
The answer is simple. If parents do not have the Kindle Fire tablets, they will not be able to use this innovative parental control service. This service, along with Amazon's comparatively cheaper price tag, should make it more enticing for customers who have kids to go for Kindle Fire tablets instead of Apple, Android-based or Windows-based tablets.
How FreeTime Targets Netflix?
In 2011, Netflix had introduced a "Just For Kids" category to target those customers who were predominantly using Netflix for their kids' cartoons and animated or live-action character-based shows. However, Netflix failed to realize that such kind of categorization might only help in easier search and browsing capabilities, and do not help parents who are really looking for parental controls to restrict titles with ratings that are inappropriate for their kids.
One must remember that Amazon has its own device -- the Kindle Fire tablets -- that can be used for content consumption and it has its own service -- the Digital Video service -- that can it uses for content provision and distribution. Netflix, on the other hand, which is already getting cornered due to the influx of other streaming services such as Hulu, Roku, DishOnline by Dish Network Corp (DISH), Amazon and Redbox by Coinstar (CSTR) faces a more daunting task in responding to this move by Amazon.
Nevertheless, as far as viewership on television is concerned, the competing ground from this aspect is level for all the streaming content providers.
Amazon had reported third quarter results in October that were in-line with most analysts' estimates. Year-over-year revenues were up more 27%, and gross margin had expanded. The company reported a loss of $0.60 in spite of this revenue growth.
Amazon's extremely high P/E and even PEG ratio of more than 110 has been a subject of many debates. In my opinion, it is tough to question this high P/E, particularly because of the way Amazon has aggressively stepped into developing its own ecosystem that serves a combination of offerings in different domains including retail/e-commerce, tablets and even smartphones and finally content. This combination is deadly for each individual competitor in each of these domains. No wonder the likes of Best Buy (BBY) and Barnes And Nobles (BKS) have suffered upon Amazon's rise.
Amazon is slowly and steadily expanding its ecosystem, which when bundled with the company's operating efficiency in the Big Data analytics space, should help it in providing some very customer-centric experiences. With FreeTime appealing to me as an innovative solution that helps parents such as myself, I am adding Amazon to my watchlist for 2013.
And as far as how effective FreeTime will be in increasing Kindle Fire tablet sales or Amazon Prime subscriptions, really depends on these questions:
- Will those customers with kids who are Netflix customers and have Kindle tablets choose to become Amazon Prime members and switch from Netflix to Amazon's Video service?
- Will parents who are planning to buy tablets this season choose Kindle Fire over other tablets because of this service?