Why the Fire really IS a threat to the iPad

I thought about posting in the Apple forum, but that seemed a bit trollish.

I've been shopping for a tablet, and am excited that I've waited until the competition has started to heat up.  As I watch what's happening in the market right now, I'm a little shocked that Amazon's Kindle Fire has been getting dismissed as a true iPad2 competitor because of its hardware. I would propose that it is, in fact, the Fire's hardware that should make it a compelling iPad competitor to the attentive shopper.  Bear with me and I'll explain.<!-- extended entry -->

First, let's take a look at how the hardware stacks up. The easiest way to do this is simply to list the ways in which the iPad is better equipped: bigger screen, more memory (storage, RAM's a wash), optional 3G, bluetooth, video out, better battery, and two cameras (compared to the Fire's utter lack thereof).  And that's just from what we can tell pre-release.

Right now you should be confusedly looking back-and-forth between that last paragraph and my original thesis.  Granted, if hardware was the whole story, the comparison between these two devices would never be made.  And, as it has everywhere else, this is where price comes into play.  The iPad sells for $500 at a minimum, whereas the Fire is entering the market at only $200 - and I'd be surprised if it didn't drop in 2012Q2 based on their ramped-up production scale.  But unlike everyone else that's been talking about the consumer appeal of these devices, I don't think these prices are the ones to consider.  As a consumer, the thing that makes the Fire most appealing to me is what Amazon is paying to build it.

The best estimates have Apple paying in the neighbourhood of $325 for their tablet, pulling down at least $175 profit with every iPad sold.  On the other hand you have Amazon, who most analysts agree are selling the Fire at a loss, or at best, giving it away. Now this isn't news to anyone that's interested, but I propose that far fewer people have expressed interest than should. Those iPad features I listed above cost about $125, and if you buy an iPad, you're paying $300 for them. Indeed, this single differentiator should be one of the biggest reasons to consider a Fire over an iPad.

Both of these gadgets are, fundamentally, media consumption devices.  They are best suited to casual gaming, watching video content, and consuming graphic-intensive content such as webpages, emagazines, comic books, and the like. Both devices are well equipped to accomplish these relatively computationally meager tasks. It's true that the iPad's hardware is functionally more powerful, but the true measure of usability for these devices will be content - and not just the availability of content, but also the functionality of said content.

At launch, the Fire will have comparable content available.  Both platforms have a large catalog of casual gaming apps, and both are compelling platforms for publishers.  When early adopters get their Fires next week, I expect they will find the tablets are very good at streaming video and music, and that obtaining such content is a streamlined and simple process - just like it is on the iPad2. But will that still be the case in two years?

This is where the cost of production becomes pertinent.  Because apple gets back 150% on their investment by merely selling the hardware, it is quite attractive to promote a short product lifecycle. Like they've done with the iPhone, Apple will probably continue to release a new version of the iPad every year, and through crippling iOS updates, and by instituting new features without ensuring backwards hardware compatibility, the experience of using an iPad2 will rapidly become less and less magical.  Probably (if the iPhone is any indicator) the iPad2 will even begin to feel frustrating to use after the 2-year mark.

On the flipside, there's nothing but downside for Amazon to encourage a short product lifecycle.  They've done a very pro-consumer thing by engineering their product to only make Amazon money if the user continues to utilize the device, and the longer they keep the experience compelling, the more money they'll make.  From that standpoint, the fact that the Fire has only 8GB internal storage and no expandability should seem exciting.  It means that Amazon has built themselves a strong incentive to expand and improve their cloud services.  Where Apple is incentivized to add features to new hardware, even at the expense of older devices, Amazon is incentivized to add features explicitly in order to improve older devices.

So ultimately the $200 and $500 pricetags are a bit misleading - really the comparison should be $500/2 years vs $200/5 years. Ok, 5 years may be a bit optimistic, but even if Amazon can extend their product life to 3 years, you're talking about about $67/year for the Fire vs $250/year for the iPad. To me, that's a much more compelling price comparison than $200 vs $500. Furthermore, it's fair to expect that the experience of using a Fire will only become better, whereas, like all Apple products, the iPad will become over-ripe and mealy.