Amazon (AMZN) goes to war against Apple (AAPL) armed with a new Kindle

By: ispeculatornew
Date posted: 07.29.2010 (4:00 am) | Write a Comment  (2 Comments)

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It is no secret, we have never been a big believer in Amazon’s strategy regarding the Kindle, for so many reasons. Starting to think about adding Wifi and Colors to its Kindle after the release of the far superior Ipad seemed late. So when Amazon recently announced its earnings just days after revealing that it had sold more electronic books than physical books (actually now selling 180 electronic books for every 100 physical ones), it was very bad news in our opinion. Why would it be good news to have the biggest portion of your sales in a segment where it seemed destined to lose market share mainly to Apple but also to the many rivals who are now entering the market. It seemed like a desperate situation and I guess we are not the only ones who believed it was the case….

Desperate times call for desperate measures

We have to applaud Amazon. According to Crunchgear, Amazon is launching a new improved Kindle at a much reduced price , $139 for the Wi-Fi version and $189 for the 3G version. Of course, there are still many lacking elements to this new Ipad and no it does not have colors, apps or all those other great Ipad elements. But it is a solid ebook reader at a very cheap price. I admire the guts to do this and would imagine that it would help Amazon’s stock and will almost certainly hurt Apple’s. Most consumers that were thinking about getting the Ipad will probably still do that (including yours truly) but I think that many customers who might not have purchased an ebook reader might just go ahead and that will help Amazon remain in the mix of things, as a solid competitor to Apple.

Now I don’t think anyone would doubt that Amazon will make little if any profits selling the Kindle at such a low price. But it’s not really about selling Kindle’s or Ipad’s, but rather about being the device used by consumers when they turn to buy books, newspapers and in Apple’s case, applications and videos too.

Will Apple answer back?

Apple generally does not play much with its prices no matter what its competitors do. Is it because they are immune to price elasticity concepts? Or simply because Apple lives in its own world and does not really care about its competitors strategy? But I don’t think many doubt that Apple could easily take down its prices significantly. No, of course it could never compete with Amazon’s prices but it’s a far superior product anyway so there is no need to take it down as much.

My guess is that no, Apple will not respond. The fact remains that Amazon has an inferior quality product and over time, as Apple can also take down its price, it will be very difficult for Amazon to keep its market share… Apple will most likely remain on its schedule and only take down prices when it gets closer to the release of the next generation of Ipad’s.

Here are the stock charts for both companies:

Amazon (AMZN)

Apple (AAPL)

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2 Comments

  1. […] Amazon (AMZN) goes to war against Apple (AAPL) armed with a new … […]

  2. […] being somewhat critical of Amazon (AMZN) last year, I did turn my view around, mostly concerning Amazon’s great business model but even the […]

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