Amazon.com, Inc. (AMZN) is still being looked upon as a "buy" by analysts, as it continues to move up in price. I was surprised with the announcement of the mini iPad coming out. It is a real threat to the Kindle, which is the core of Amazon's marketing. But we should give Amazon more credit, the company has more in its arsenal to put into Kindle to keep it competitive with Apple (AAPL). Let's take look at the possibility of competition between the two.
Mini iPad and Kindle
As expected, Amazon will be releasing its new Kindle Fire very soon, and it may be an interesting fall as Apple sticks its nose into the mini-tablet market, looking for a piece of the pie. As the iPad dominated the standard tablet market what will happen when it challenges the Kindle? Its huge app library and best features dominated the market so much that rivals did not have a chance, as Hewlett-Packard (HPQ), Motorola, and Research in Motion (RIMM) found out. If customers had $400-plus to spend, it was going to Apple plain and simple.
Amazon has fared pretty well because of its marketing strategy. It has never gone straight up against the iPad like the other companies I mentioned earlier. With a low price, it went after a market of consumers interested in a smaller cheaper version of a tablet. But will that continue to work if Apple offers a smaller version of the iPad? This could mean the strategy Amazon has been using could vanish quickly with a lower price and smaller iPad. This is presumed to be taking place this October. The average consumer has had two choices: a high-end Apple or a low-end Amazon. A low-end iPad could change the whole mini tablet concept and could cause Amazon to rethink how it markets.
Amazon's 14% market share, the fourth quarter of 2011, may be up for grabs now. Should we get ready for the final battle of the mini tablets? This is a good question. Apple is the name and tablet of choice, so if the company comes in with a low-priced alternative to the Kindle about the same price, it seems like it would then have the advantage over Amazon. So why would people buy the Kindle over a min iPad? Feature for feature, Apple has the advantage, and Amazon is going to have to find a way to compete by finding ways to add value to the Kindle.
One likely outcome could be a price war. If the min iPad comes out about the same price, the Kindle may have to drop its price enough that it keeps market share. Apple has a large war chest and could easily go after the Kindle price for price initially. Another battle that Amazon has is in the media market. Its library is extensive and even though Apple has a good media market, it cannot stand up next to Amazon. Amazon has ramped up those offerings recently, by expanding its e-book catalog and inking streaming video deals with Epix and Comcast's (CMCSA) NBC Universal.
The Epix Deal
The agreement opens up thousands of new video releases and classic libraries to Amazon's Prime Instant video. Some of the studio names you might be familiar with: Paramount Pictures; Metro-Goldwyn-Mayer Pictures; Lionsgate Entertainment. This brings its library to more than 25,000 movies and TV episodes. Bill Carr, Vice President of Video and Music at Amazon, said:
"We are investing hundreds of millions of dollars to expand the Prime Instant Video library for our customers. We have now more than doubled this selection of movies and TV episodes to over 25,000 titles in just under a year. We are thrilled to be able to offer our customers such popular EPIX titles, many of which were just recently in theaters. We can tell from the data that our customers love watching movies on Prime Instant Video."
This is just one example of how Amazon is setting itself up as a media giant and it will take all these resources for Amazon to offer the Kindle as a viable alternative to an Apple min tablet that is comparable in price to the Kindle.
Jeffries & Co had this to say about Amazon:
Amazon is one of the very few names in this space that has proven its ability to deliver consistent growth while maintaining above-average CapEx spend."
I believe Amazon will be able to hold its own against Apple with the new competition. I cannot say for sure if it will do better, but Amazon has positioned itself as a media monster and many people buy tablets for entertainment features more than they do for business. The Kindle will do well.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
