It was obvious that Amazon.com had to respond to Google's much superior Nexus 7 tablet. Amazon.com decided to do this by matching mostly every feature on the Nexus tablet, and then throwing in HDMI out and double the in-device storage (16Gb vs 8Gb, 32Gb vs 16Gb) for the same price. Amazon.com also decided to include some enhancements to wifi and display technology. That all of this will be ready only by November 20, shows that Amazon.com probably had to go back to the drawing board with its devices.
Still, as spec'd, Amazon.com's devices should be competitive, perhaps even supplanting the Nexus due to Amazon.com's better service and content reputations.
However, the gauntlet here had further implications. Amazon.com is rumored to be forking not Android 2.3 as it previously did with the first iteration of the Kindle fire, but Android 4.0. So Amazon.com is actively using the later evolutions of Android OS while keeping out all of Google's monetization efforts. This means that the challenge Amazon.com is throwing Google's way is more serious than before. Amazon.com is free-riding Google's investment into Android in a way that should be severely unacceptable for Google.
The implication is that Google not only needs to answer Amazon.com's challenge in the tablet hardware front, it also needs to find a way to severely cripple Amazon.com's usage of Android, before Amazon.com somehow manages to wrest control of the OS from Google by building a user base.
Amazon.com went high-end with its latest Kindle Fire HD devices. It actively tried to match Apple's specs while undercutting it on price. Apple clearly believes that the tablets will present an evolution into a post-PC world, so it probably doesn't want to lose its leadership in that particular market, or see it materially weakened. Yet Amazon.com, by presenting a lineup of tablets which match the iPad's specs on hardware AND content, while being sold for almost half the price at times, clearly can take a knife to the iPad's market share.
Amazon.com is doing this from a position of weakness. It's pricing its tablets at cost, even when it's unlikely that Amazon.com can enjoy lower costs for the same components, given Apple's much larger component buying and in-house CPU design. The latest iPad's estimated cost was $316 for the 16Gb wifi version, comparable to the Kindle Fire HD 8.9" - which retails for $299. And remember, it's likely that Amazon.com has higher costs for the same specifications.
Amazon.com's entry into the market can clearly eat up a lot of Apple's market share if Apple doesn't respond. And the iPad mini (7") is not response enough at this point, since the Kindle Fire HD 8.9" is aimed at its larger brother.
What can Apple do? The only answer right now is the one that Apple hasn't done in eons and seems highly unlikely to do. A price war. Apple could fight Amazon.com on price and win simply because it's producing more, and hence, has lower costs.
Amazon.com is moving into a very dangerous position. It's challenging fundamental pillars of both Google and Apple, while not leading on cost. Either might be forced to respond in a way which will plunge Amazon.com into a long and profitless war.
Without such war, it's likely that the devices Amazon.com just announced will sell very well and help Amazon.com's revenues significantly. However, it's also likely - without any war - that these devices won't help Amazon.com's profits.
However, if a price war does come, Amazon.com's very existence might be threatened. Amazon.com is not yet ready to face the giant cash hoards of Google and Apple, and neither Google not Apple have their earnings-producing core in tablets, which means either is perfectly able to fight a localized war without threatening its own profitability too much.
Amazon.com is literally playing with fire. It depends on Apple's tradition not to fight on price, and on Google simply relinquishing Android's control for tablets. The risk for Amazon.com in this move is huge.
Disclosure: I am short AMZN.