I received two excellent Christmas gifts this year.
Santa put a Kindle Fire under our Christmas tree. And my mother-in-law (who, by the way, is fighting a brave battle as we speak) bought me the Steve Jobs book by Walter Isaacson.
While I have yet to commence reading about Jobs, I did look at the pictures. One shows the former Apple (AAPL) CEO standing in the foyer of his cool-looking home. In the background, it's tough to miss the opened Amazon.com (AMZN) book sitting just behind Jobs to the left. Somebody captured that shot in 2004.
Of course, Steve Jobs, presumably, buying stuff from Amazon roughly seven years ago does not provide strong support for my case that Apple and Amazon share great respect for one another, rather than a penchant for fierce competition. But, it does offer, at the very least, a symbolic, albeit clumsy, segue into two of my strongest convictions regarding Amazon, one old and one new:
- Amazon never intended to compete with Apple when it introduced Kindle Fire; and
- Poor reviews of the Fire are misguided at best and hardly objective at worst.
I take the second point first because it naturally leads into the first.
Simply put, I love Kindle Fire. I preface the following by saying that I did not use it prior to Amazon's recent software update. Therefore, maybe the device was indeed a complete and utter embarrassment before the refresh. That aside, many of the initial complaints still stand, even with the update. Quite frankly I think they come from Apple snobs who completely misunderstand why Amazon put the Fire out in the first place.
Consider the following criticisms of the Fire:
Unlike the PlayBook, iPad, or pretty much any other tablet on the market, the Fire has no hardware volume controls, meaning that you have to go through a series of taps (especially if the device is sleeping) to just change the volume. The Fire also has no "home" button - simply a small, hard-to-find nub along the bottom used for sleeping and waking the device, and powering up and down. That means that Amazon had to create software navigation for getting around the tablet, which would be fine ... if the home button wasn't always disappearing into a hidden menu.
Now, you know as well as I that if Apple handled volume control and the home screen tab like Amazon did, reviewers would have referred to the design as "slick" or "minimal." Granted, the above-cited reviewer did give credit to the Fire where it's most obviously due. It's definitely more comfortable to handle for long periods of time than iPad. But, I like Kindle Fire for a whole host of reasons. In fact, other than the minor annoyance that it does not take fingerprints as well as iPad, I have no complaints.
The device is a pleasure to navigate and explore with. The nitpicks reviewers keep coming with are just that, less than minor annoyances that smack of a world full of impatient, self-entitled Apple brats.
Sure, you can accidentally tap the power button from time to time. But, guess what? It either only puts the device to sleep (push the button again and you are right where you left off) or asks you if you want to shut down or cancel. And have you ever tried finding the buttons that control volume on an iPad? They're horribly placed. Is the Fire slower than iPad to load pages, apps or respond to a tap? Probably. Sometimes. Personally, I'm willing to wait one minute longer for a train that goes to the same places and offers the same, if not better experiences, once you get there when the fare is a fraction of the cost.
But, that's not the point. The second you fall into the trap of comparing the Fire to iPad or any of the Apple copycats, you miss the point. The copycats came to market with an expressly unoriginal and unrealistic goal for their tablets - steal market share from and, at minimum, compete, on some level, with iPad. It was clear to anybody with a brain that those aspirations would fall flat. Why should it be any different for Kindle Fire? Any ding Amazon puts into Apple's iPad sales (and I doubt it will be meaningful, even in Q4) represents little more than collateral damage. An indirect hit.
Kindle Fire is tantamount to an Amazon.com credit card. Jeff Bezos and his team built it with one goal - to get you to buy more things from his company and use more of its services. Given the way Amazon set up the Fire user experience, you have to have loads of self-control to resist the urge to make impulsive purchase after impulsive purchase.
When you buy something on the Fire, you don't even feel as if you're making a purchase from Amazon.com. Unlike Apple devices, which show your username and ask for your Apple store password before every purchase (sometimes more than once), Amazon does not put you through such due diligence. While Amazon does make it easy to immediately cancel an errant buy (many reviews gloss over this fact), buying stuff remains as seamless as seamless gets.
I'm not a numbers guy so I'm not going to pull quantitative magic out of the sky and tell you how much revenue Kindle Fire will generate for Amazon's bottom line. But I will be shocked if it's not substantial.
Amazon's greatest fear must be that Kindle Fire buyers will just take the dollars they spend with Amazon directly at the company's website in front of a computer and transfer them to Kindle Fire purchases. Instead, Amazon needs one or both of the following to take place:
- Kindle Fire owners end up spending more with Amazon on the Fire than they would have at Amazon.com without the tablet.
- Kindle Fire owners draw a distinction, even if it's subconscious, between tablet purchases and Amazon.com purchases.
While we tend to focus on the first, the second point probably holds the key for Amazon. As an Amazon.com customer for years and a new Kindle Fire owner, I think I'll treat purchases between the two like I do the decision to buy online or from a brick-and-mortar store. To this day, there are some commerce experiences I just prefer having in person, not online. This delineation could provide Amazon with more overall revenues than it would have seen without Kindle Fire.
You can think of the various scenarios yourself, but, like the decisions people make between brick-and-mortar store and e-commerce purchase, consumers probably make the same distinctions between tablet and direct online purchases. You'll buy your toilet paper one way for the rest of your life, but there's only one way to download the ad-free version of your favorite app.
Endpoint - there's more than one way to skin a cat and hustle the buy-on-credit, think about it later consumer out of his/her hard-earned cash. If you've linked a payment method to your Amazon.com account and you just tore the lid off of a Kindle Fire, Jeff Bezos has got you right where he wants you.
Between the Kindle Fire phenomenon and generally-rising e-commerce sales, expect Amazon to blow the doors off of Q4 from a revenue standpoint. Because uncertainty still surrounds profits and margins, thanks to Amazon's continued reinvestment, you place a speculative bet going long AMZN at these levels. That said, historically, investors have given Amazon the benefit of the doubt because it consistently generates ROI. If revenues jump hard enough, expect smooth sailing back to 52-week highs for the stock through the first quarter of 2012.
Disclosure: I am long AAPL.
