Amazon Fails to Take a Bite Out of Apple

SANTA MONICA, Calif. ( TheStreet) -The buzz surrounding Amazon's ( AMZN) Kindle event may have been around the new products announced, but it's clear the Seattle-based company has one target in mind: Apple ( AAPL).

By announcing the new Kindle Fire HD in both 7-inch and 8.9-inch sizes, CEO Jeff Bezos and his team are clearly setting their sights on the burgeoning tablet market as they try to take on the $600 billion (and growing) Cupertino-based tech giant, albeit in a different way. "People don't want gadgets, they want services," Bezos said during his presentation at the launch event in Santa Monica, Calif. "They want services that get better over time. Kindle Fire is a service."

The event was not only limited to the new Kindle Fires. Bezos also announced a new Kindle e-reader, the Kindle Paperwhite, which offers users a whiter back screen when reading. This will cost $119, or $179 for the 3G enabled version, and ships Oct. 1. He also announced price cuts for the previous Kindle Fire (now down to $159 from $199), and the original Kindle (from $79 to $69).

"Kindle Fire HD is not only the most-advanced hardware, it's also a service, Bezos said in the press release. "When combined with our enormous content ecosystem, unmatched cross-platform interoperability and standard-setting customer service, we hope people will agree that Kindle Fire HD is the best high-end tablet anywhere, at any price."

The new Kindle Fire HD's are a big step up from the previous Kindle Fire. Included in the new tablets are a 1920x1200 HD display, stereo speakers from Dolby ( DLB) (the first tablet to have this), a Texas Instruments ( TXN) 1.5 Ghz dual-core processor, dual-band and dual-antennas for improved Wi-Fi performance (known as MiMo), social network integration with Twitter, Facebook ( FB), unlimited cloud storage, and a front-facing camera for video calls.

Bezos failed to mention in his presentation that all the Kindle Fires are ad-supported on the lock screen, something consumers may not want, especially if they can't opt out of it. Personally, this doesn't bother me as much as it might some other folks, but it was certainly noticeable. "I think it's really lame of them not to mention this during the event," noted one Amazon investor, who preferred to remain anonymous. The investor is short Amazon.

Other features include X-ray for movies, music, and books. The X-ray feature lets you find out, for example where you've seen that actor or actress before. The feature can also tell you additional information about the author of the book you're reading.

Despite all these improvements over the original Kindle Fire, there's still a lot of work for Amazon to do to really compete with Apple. Throwing out specs at consumers is all well and good, but it's also about being able to tell a story and tell it immediately, which Apple does so well. There's a reason why the iPad maker has 68% of the tablet market, according to research firm IDC.

When asked during an interview why the Kindle Fire HD is shipping on Nov. 20, as opposed to sooner, Peter Larsen, Vice President of Amazon Kindle, replied that "We're not going to release a product until it's ready - we have to get it approved by the FCC." Apple, on the other hand, gets consumers excited for its devices, and releases them to the masses shortly thereafter. Whatever positive buzz Amazon has built up from this event will long be gone by Nov. 20.

It also seems as if Amazon's scared of Apple. Larsen said there wasn't a concerted effort to stay away from the 10-inch model which is largely dominated by Apple, but noted "our customers said to us 'we want these sizes'."

Bezos repeatedly said Amazon wants to make money when the customer uses the device, not when they buy the device. Larsen declined to comment on the tablet's operating margins, but reiterated what Bezos said during the speech. "We're not making money on the hardware but we're also not doing the razor blade model either."

This is in stark contrast to Apple, which generates a healthy margin on its iDevices, but only generates a small percentage of is revenues from content. In the third-quarter, the iTunes Store only accounted for $1.8 billion out of $35 billion in total revenue. Of Amazon's $12.8 billion in revenue from its most recent quarter, $4.1 billion was derived from media. Apple and Amazon are clearly going at the tablet market two different ways: focusing on selling content to put on the device (Amazon), versus focusing on selling the device (Apple).

Bezos repeatedly said that Amazon "wants to make the best tablet at any price," a shot across the bows of Apple's iPad, which starts at $499. The 7-inch version starts at $199 for 16 GB, and the 8.9-inch model starts at $299, but the $499 model is where Bezos is hoping he can compete with Apple. For $499, customers also get 4G LTE connectivity. The logo Amazon used appeared to be AT&T's ( T) logo for 4G, but Bezos did not mention the company by name. The 4G service costs $50 per year for 250 MB of data, 20 GB of Cloud Storage, and a $10 AppStore Credit. That's a savings of $180 per year over Apple, but it's yet to be seen whether customers will take to the Kindle Fire HD the way they have the iPad.

Amazon is making a valiant effort to compete in the high-end tablet market, alongside Apple. The Kindle Fire HD is much improved over the Kindle Fire not only because of new hardware, but new software as well (Kindle Serials, more apps, games, Kindle FreeTime, for example). Ultimately, it feels as if the company will come up short in making a dent in the high-end tablet market Apple has dominated since 2009. The effort is there, but Amazon has to convince consumers to shift away from the Apple ecosystem.

The Seattle-based firm may also have to watch its back on the low-end as well, especially if the "fruit company" comes out with an iPad Mini.

-- Written by Chris Ciaccia in Santa Monica, Calif.

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