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How Kindle Fire Killed Every iPad Competitor In The Room…And Now It Will Kill Itself*

|Includes: Apple Inc. (AAPL), AMZN, BB, GOOG

Apple officially created the tablet market in 2010. For almost one year, Apple lived free and without competition in that market.

BUT… In 2011, competition started. First it was RIM´s Playbook, then Samsung´s Galaxy Tab, then Motorola´s Xoom and so forth. All of them were announced with fanfare as potential iPad killers, and most carried rather impressive specs no one quite understood. What did the iPad have? A simple interface that "just works" and lots of apps.

None of this players could charge more for its products than Apple did for its iPad, because they were not as well developed and had fewer available apps. Who would want to buy a Tata Nano for the price of a BMW? Who would buy another tablet for the price of an iPad?

So every new player charged a price lower than Apple did for the iPad. And everyone thought that was the fate for the tablet market: Apple would charge premium prices for premium products, and the others would charge a lower price for a not-so-premium product (and with a poorer selection of apps).

BUT…Amazon created the Kindle fire and started selling it for $200. And everyone who wanted a tablet but couldn't spend 600 bucks for an iPad started buying Kindle Fires.

The competition, outside the iOS, is all about price (example here). Amazon won this war, because they thought that even if they lost money in the tablet itself, they would sell products (music, books, movies etc…) through its Kindle Fire and make profits then.

The "Samsungs", "Motorolas", "HPs" and alike couldn't follow this strategy, because they had no content to sell. So everyone else (besides Apple) started to revise their tablet strategy and eventually discontinued those products (here, here and here).

Kindle Fire Killed Every Competitor In The Room

BUT…After announcing the New iPad (or iPad 3), Apple reduced the price of the IPad 2 to $399. Now every customer that had between $400 and $600 to spend in a tablet is fleeing Kindle Fire and buying iPad 2. They're as rational as you and I: who would buy a Lada for the price of a BMW? Unless you're nostalgic Russian, you would take the BMW and sync it with your iPad.

Let's be honest. Most people would like to have an iPad instead of a Kindle Fire, if both cost the same price (they don´t, but now the price gap is smaller). So, now, Kindle Fire targets only a public that is wishing to spend less than $400 in a tablet. Obviously, a public with very constrained financial resources.

NOW…Amazon is subsidizing people with less financial resources than before. And those people have a trend to consume less content. There are exceptions, of course, but as a general rule people with fewer resources spend less in content than people with more financial resources. That way, Amazon is subsidizing people that, on average, will consume less of its products than before. How long will Amazon keep the strategy of losing money on non content buyers?

That's why I believe Kindle Fire killed everybody in the room. Amazon thought it could sell tablets with a loss and sell content in the future. No competitor from Taiwan, Korea or Japan could do this, and they were killed by Amazon´s move.

Now Apple is taking away Kindle Fire´s best customers (people willing to spend >$400 in a tablet and pay for content).

Apple is taking the filet mignon for itself and leaving the bones for Amazon to chew…

Now Amazon Will Kill Itself*

*in the tablet market, I don´t mean the company as a whole

Disclosure: I am long AAPL.