Jeff Bezos is not an idiot. Bezos knew/knows he had/has no chance of even denting Apple's tablet market share. Bezos conceived Kindle Fire, not as an iPad knockoff, but as one means to the end of driving Amazon's e-commerce sales.
If we believe recent comScore data, Kindle Fire, at least relative to iPad, might be falling short. For a synopsis of the numbers see my article, Apple Leads Amazon In Mobile Commerce Race or, as Jim Cramer put it in a tweet, Apple Pantsing Amazon?
Simply put, iPad owners engage in a wide range of e-commerce activities, such as making purchases and researching items, at a much higher rate than Kindle Fire users. Before discussing how Apple could punkslap Amazon and save brick-and-mortar retail's sorry butt, a few disclaimers on comScore's stats:
Lower mobile commerce-related engagement rates cannot lead us, without question, to the conclusion that Kindle Fire does not do its job for Amazon. Plus, some iPad users could be shopping through an Amazon.com app.
I'll make the presumably safe assumption -- iPad buyers are more affluent than Kindle Fire owners, thus leading to more purchases.