Case 1: Klndle Fire:Amazon's Heated Battle for theTablet Malket

C-13

CASE 1
Kindle Fire:Amazon's Heated Battle for the Tablet
Market

Mohanbir Sawhney, Joseph R. Owens,

and Pallavi Goodman History of Amazon
Kellogg School of Management, Northwestern In 1999 Amazon accomplished its founding mission
university of becoming the world's largest online bookstore. Two
years later it turned its first profit. By 2011, just
In January 2012, as Jeff Bezos reflected on the early
fifteen years after the company started out of Jeff
sales success of Amazon's Kindle Fire device, he was
Bezos's 400- square-foot garage, Amazon had 25
oddly trou bled. Ina little over three months, Amazon
million square feet of warehouse space, reported $50
had sold nearly 5 million Kindle Fires and had captured
billion in reve nues, and controlled 10 percent of the
half of the non Apple tablet market share. Worldwide
North American e-commerce market (Exhibit 1
sales of e-books since the introduction of the Kindle
and Exhibit 2). Competitors struggled to transition
product line had grown from less than 1percent of
from brick-and mortar-based businesses, but Amazon
all books sold to 15 per cent in 2012. But Bezos was not had repeatedly been at the forefront in the e-
ready to call it a success yet. commerce market. From its pioneering use of user-
As he anticipated Apple'simminent announcement based reviews for product comparisons to its
of the third-generation iPad and its entry into the development of 1-Click• ordering on its website,
textbook market, Bezos knew he would have to refine Amazon had continued to innovate. The company's
his strategy for the Kindle Fire. In addition to Apple, marketplace for third-party vendors, intro duced in
new entrants such as Samsung, Motorola, and Google 1999, helped grow its selection rapidly.
were beginning to enter the tablet market. Bezos's 2010 annual letter to shareholders touted
Furthermore, Amazon's long time competitor in the E that "invention is in [Amazon's] DNA" and that the
Ink1-based e-readers, Barnes long-term interests of its shareholders were perfectly
& Noble, was now selling a device nearly identical to the aligned with the needs and wants of its customers.
Kindle Fire called the Nook. Bezos had told investors This focus on the long-term, however, with repeated
that the Kindle Fire was the keyto Amazon's future in innova tion and thrusts into new markets, had created
the hardware space. The markets seemed to agree. tension with the short-term interests of investors. The
Amazon stock had dropped $40 since the launch of the
$45 fall in stock value between Q3 2011 and mid-Qi
Kindle Fire. Analysts were concerned about the Kindle
2012 illus trated this tension between Amazon's
product line's economics because Amazon was selling
visionary invest ments and public market investors
the hard ware at cost, betting that content and commerce
(Exhibit 3). Investors were doubtful of the margins
revenues would make up for the hardware price
Amazon would attain on the new streams of revenue
subsidy.
that it was betting would flow through its new
Bezos was wrestling with several issues with the
devices.
Kindle Fire strategy. How should Amazon modify
When Amazon began offering its spare server com
the positioning of the device in response to the new
puting power and storage space as a service in 2006, the
entrants in the tablet market since its launch? What
cloud-based information technology services field was
was the most promising target market for the Kindle
still nascent Underthe rapidly expanding Amazon
Fire,and how should it be positioned against WebServices (AWS) division, Amazon rolled out its
competing products? How could Amazon tum the Elastic Compute Cloud (EC2) platform and the Simple
sales success of the Kindle Fire into business
Storage Service (S3). AWS was expected to make up
success? Would revenues and profits from commerce
just 3 percent of Amazon's revenues by 2012, but AWS
and content justify selling the hardware at cost?
revenues were expected to
What were the likely responses of the competition?

@2014 by the Kellogg School of Management at Northwestern UDiversity.ThiJ cue was prepared by Professor Mohanbir Sawlmey and Joseph R.
Owi:m, PhD, and Pallavi Goodman. Cases are developed solely u the basis for class discussion. Some facts Inthe cue have been altered for classroom
dlsCU$$1on purposes. Cues are not Intended to serve u endo ll0\11'1:eS of primary daa, or illU9ll'al:lon3 of effective or lneffuctive
management. To order copies or request perm!aaion to reproduce materials, call 847.491.5400 or e-mail [email protected]. No part of this
publication may be reproduced, 1tored ina retrieval l}'ltell1. 1Bed in a tpreadsheet, or truwnitted inany form or by any means-electronic, mechanical,
photocopying. recording. or otherwise-without the permission of Kellogg Case Publishing.
C-14 Part 4: Case Studies

Exhibit 1 Amazon Financials

Year End9CI i>.cember 31

2011 2010 2089

NET SALES($ inml•ons)
North America
Media
Electronla and othergeneral merdlandise 7,959 6,881 5,964
Other" 17,315 10,998 6,314
1,431 828 550
Total Harth America 26,705 18,707 12,828
International
Media
Electronla and othergeneral merdlandlse 9,820 8,007 6,810
Other" 11,397 7,365 4,768
155 125 103
Totalinternational 21.3n 15,497 11,681
Consolidated
Media
Electronla and othergeneral merdlandise 17,779 14,888 1i,n4
Other" 28,712 18,363 11,082
1,586 953 653
Total consolldattd 48,0n 34,204 24,509
YEAR-OYER-YEAR PERCENTAGEGROWTH (%)
North America
Media
Electronla and othergeneral merdlandise 16 15 11
Other 57 74 43
Total Harth Amnica 73 so 23
25
International 43 46
Media
Electronla and othergeneral merdlandise 23 18 19
Other 55 54 53
Total International 24 22 9
Consolidated 38 33 31
Media
Electronla and othergeneral merdlandlse 19 17 15
Other 56 66 47
Totalconsolidated 66 46 20
41 40 28
YEAR-OYER-YEAR PERCENTAGEGROWTH
EXQUDINGTHEEFFECTOFEXCHANGE
RATES(%)
International
Media 16 18 20
Electronia and othergeneral merdlandise 47 57 56
Other 18 24 19
Total lntematlonal 31 34 33
Consolidated
Media 16 16 16
Electronla and othergeneral merdlandise 53 67 48
Other 66 46 22
Totalconsalidattd 37 40 29
CONSOLIDATED NET SALES MIX( .)
Media 37 43 52
Electronics and other general merchandise 60 54 45
Other 3 3 3
Totalconsalldated 100 100 100
'includes non-retail activities, such as Amazon Web Services, miscellaneous m11tietlng and promotional activities, other seller sites, and Amllon co-branded credit card
agreements.
C:.se 1:KlndleFire:Amaon's Hem<! Battlefar theTablet
M11tlet C-15

Ellllll11t2 Amazon Earnings

amazon.com
Report

" ,;,
AMAZON.COMANNOUNCH FOURTH QUARl'ERSALES UP J!rMITO $17.AS 81.UON.1
KINDLE DEVICE SALES NEARLYTRIPLEDUlllNG 1HEHOLIDAYS

SEATTLE-(BUSINESS WIRB)-Janwuy :µ. 2012.-Amuon.com, hie. (NASDAQ: AMZN) today a11nounced &andal re:ralb for lb
fourth quarter ended December 31,2011.
Operat!Dg cash flow lD.aeaed 12% to s3.90 bllllon for the trailing twelve months, compared with s3.50 bill.loD. fur the
trailing twcl months e.nded D«em.ber 31,. 2010. Free cash tlow decreased 17"to S2.09 billion for the trailing twcl
months, compued with S2.52 billion for the trailing twelve months e.nded December 3l. 2010.
Common shares outstanding plu.s shan:s underlying stock-ham{ awards totaled 468 million on December:µ. :iou. compaml with 46s
million a yar ago.

Net sala inc.rea!ed 3S'l6 to $1743 billlo.111.ll the fourth quartet, compared with $12.95 billion 1.11 fourch quarter 2010.
&dueling the $101 mlllion favorable impact from year-over-year s in foreign aclumge ratet throughout the quarter, net
salet would have grown 34% compared with fourth quarter 2010.
Operulng income was s26o mlilion in the fourth quarter, compared with $474 million in fomtb. quarter 2010. The favorable impact
from year-over-year changet in foreign achangentathroughout the quarter on operatingincomewas ss million.
Net income deause4 s8'!fi to s177 million in the fourth quarter,or so.38 per diluted share. compared with net income af
$416million, or so.91per diluted share, infuurthquarta :1010.
"We are grateful to the mllliom of cuatomen who purdwed the Khldle Fire and Kindle e-reader deviUJl thia holiday aeaao.n,
makhsg Kindle our butselllng product ac:rost both the U.S.and Europe.:' said Jeff Beros, founder and CEO of Amazon.com.
"Our mllllom of third-party sellers had a tremendous holiday season with 6;'!fi unit growth and now reprmllt 36% of total un1t5
sold;"'

FuU Year .2011

Net salesincreased 41'16 to s4'1.08 billion. compam!with S34-20 billion in .2010. Elduding the si.09 billion kvorable from yar
ovcr-ycw cbangea in foreign exchange ratea throughout the ycw,net saleswould have grown 37"' compared with 2010.
Operating income decreued 39'11i to $862 million, compared with $141billion in 2010. The favorable impact from year-over-year
changet inforeign e:uhange ratet throughout the yar 0.11 operating inccme was tS3 .mill!on.

Net income decreased 45"' to s631.mill!on in 2011, or $1.37 per diluted ahare,compared with net income of s1.1s billion, or 52,53 per
diluted share, in 2010.

Source:' n.com AnnouncesFourtnQmtwS:lles Up3S'l!ito$17.43 81111011; KlndleDellfceS:llesrlyTrfple rfngtne Holldays.'Amazon.com press relmse,
December 31, 2011.

almost triple inthe following three years. Ama1.0n customer base

called its service-oriented architecture"the
"fundamental build ingabstraction'"for all Amazon
technologies.
This focus on internal technology development
had led to significant benefits for customers. Through
the widely popular Amazon Prime express shipping
sub saiptfon service, the company had built a
that was motivated to always shop at
Amazon.com first before they went
elsewhere. This service, which for an
annual fee of $79 provided two-day expr
shipping on most items sold directly by
Amazon.. was made possi ble by the
companys logistics innovations. Through
its
.marketplace partners, Amazon had
outsourced its long tail' offerings while
lowering its overhead. Without the
C-16 bun dle. More than 10,000 titles were available for
purchase
Exhibit J Amazon Stock Price Followingtl'le Kindle
FireAnnouncement

Zoom: 1d.5d.1m 3m 6m. Ym .b b1!bt All

loct 28, 20111-IJan 31, 20121-12.34 (-5.97%)

technical advancements that made the logistical infra

structure run smoothly, customers would not have
embraced these partners as a seamless extension of the
Amazon brand Additionally, the advanced algorithms
driving the popular product recommendations that were
integrated into every product page relied on
sophisticated management of the underlying data
infrastructure.
Amazon, since its founding, had a strong history of
investing in emerging opportunities years ahead of rev
enues or profitability. It took the company six years to
become profitable primarily because of its commitment
to innovation. Itwas this commitment to innovation that
drove Bezos to found the Lab126 hardware
development group, which developed, in extreme
secrecy, the future of e-commerce: the first successful e-
reader,the Kindle.

The Emergence of E-Readers

Although the attractive prospect of reading long-form
texts digitally had led to many e-readers coming to mar
ket over the years, e-books had remained a niche curios
ity. The original "killer app,D the paper book, remained
largely unchallenged until the advent of E Ink technol
ogy in 2997, which made reading possible in any light
condition and with minimal power usage. The new crop
of e-readers was born.
In 2007 the market leader was the Sony Reader. It
could hold alibrary of up to one hundred books and
was sold for $299-$399, depending on the accessory
 Part 4: Case Studies

at 75 to 85 percent of the retail price of a physical

book However,the SonyReader was clunky to use and
difficult to load content onto. Even the simple act of
page-turning was slow and difficult to manage one-
handed.
For more than a decade, various competitors offered
iterations on this basic business model, and had sold a
combined 400,000 units by the end of 2007. The Iliad
by iRex, larger than the Sony Reader, was sold for $799
and could adequately display full-sized PDF filesbut had
similar drawbacks in content acquisition for customers.
Many early adopters also used the tiny screens of a vari
ety of personal digital assistant devices such as the Palm
III and V. as well as early-generation iPhones, to read
e-books. Critics cited the slow and clunky operation and
general poor usability of early e-readers as book replace
ments as well as the inadequate e-book distribution and
promotion model as reasons that the e-book had yet to
jump the chasm on the innovation curve.

The Amazon Kindle

In a highly successful product launch, Amazon intro
duced its own e-reader, the Kindle, in November
2007. The Kindle featured a QWERTY keyboard, an
onboard dictionary, and access to Wikipedia. Ithad
memory suffi cient for two hundred titles, which was
expandable via an SD card Its grayscale, passively lit
screen sipped battery and thus could last for more than
a week The stark white, 10.3-ounce device with a 6-inch
E Ink screen was, at first glance, similar to competitors'
offerings. Under the hood,
Case 1: Klndle Fire:Amazon's Heated Battle for theTablet Malket
C-17

though, lay Whispernet, an EVDO cellular antenna with opment and to offer their content through the Amazon
prepaid Sprint service that enabled wireless content e-bookstore. Amazon subsequently shocked these
deliv ery. At several points during the Kindles
publishers by subsidizing the price of new titles, many
development, Bezos sent engineers hack to the drawing
hoard to make Whispernet work seamlessly. Bezos knew
of which were offered at $9·99·This aggressive content
pric ingmodel, co-announced with the product launch,
the key differ entiator for the Kindle would he the
helped the first-generation Kindle sell out in the first
capability for cus
three hours.
tomers to discover, purchase, and sync content quickly
When Amazon started the development of its first-
and easily wherever they happened to be-sans
generation Kindle in 2006, the entire e-book mar ket
computer.
was only $3 million and lessthan 1percent of allhook
The first-generation Kindle was priced sales in the United States. But both e-book reader device
competitively at $399· In addition to the more than sales and revenues for e-book readers were projected to
100,000 e-hooks offered by Amazon, customers could grow substantially in the ensuing years (Exhibit 4). Five
purchase subscrip tions to nineteen newspapers (for $5 years later, Amazon's revenues from e-books were esti
to $14 per month), sixteen magazines (for $1.25 to mated to have topped $1billion. Amazon had likely (it
$3.49 per month), and hundreds of biogs (for $0.99 per does not publicly release these metrics) sold a cumula
month) that would self update wirelessly. Customers
tive 30 million Kindle units.
were also provided with an e-mail address specific to
As the Kindle product line evolved, Amazon
their device that could be used
contin ued to enhance the user experience, mostly by
to load and convert DOC and PDF file formats for view
improv ing navigational features such as page-turn
ing on the Kindle. This service cost 15 cents per
speed, battery life, and screen resolution, and by
megabyte. Prior to the Kindle's release, Amazon sent
reducing the device's weight and width (Exhibit 5). To
its repre
expand the use cases for the Kindle product line,
sentatives to knock on doors and cajole the major book
Amazon developed a larger version of the device. The
publishers to digitize their offerings for its new e-
$549 Kindle DX fea tured a 10-inch screen, making it
reader. By bringing the publishers onhoard, Amazon
the ideal e-reader for displaying figures and tables
hoped to simplify the digital rights management (DRM)
from textbooks or business documents.
issues that were slowing the move toward electronic
distribution of books. The company succeeded in
convincing all of the "Big Six"publishers to rapidly
accelerate their e-hook devtl-

Exhibit 4 E-Book Market Growth and Projection

33 - - Total U.S. E-Book

Reader Revenue
30 (Millions)

27 $2,509
24
21
18
15
12
9
6
3
0
2009
2010 2011 2012 2013
- - Total E-Book Reader Device Sales (Millions)
- - Revenue per Device (Hundreds)
$3,250 $750
$1,750
$2,750 $250
$1,250
$2,250 $0
C-18 Piirt4:CneStudln

Eldllllt 5 The Evolution of Amazon's Kindle Product

Line

.. .
.. \.
.
\.
ICINEll£2
R:BIWM'I'.2009
.\ ICIPmU: ICFfllOARl)

AOOUST 20t0
\

ICINDLEDX -C1£TOUOt
MAY200t $El'TE'lllERIG11

Eldllllt' E-Book Universe (circa 2009)

KEY
Reading Device
Wireless Provider lllUOUllMI ,.1151 c»)
MQbllt App J
Content Provider l
Acquisldon r"'* 1 www.tKhftwuom

As the e-reader market matured. price preuure on field as well (Exhibit 6). Each generation of the
the device'slowly grew.Prior competitors such as Kindle had focused on improving the user experience.
Sony. iRex. and Hanlin released updated. cheaper lowering the cost. and growing the general adoption
devices, but importantly Barnes &: Noble (B&:N) of Amazon e-books and other Amazon co:atent.
jumped into the
However,the newer
Case 1: Klndle Fire:Amazon's Heated Battle for theTablet Malket
C-19

entrants forced Amazon to begin to discount its devices and added to their online portfolios. They developed
considerably (Exhibit 7). proprietary platforms to adapt to this digital transition,
Amazon used its installed base4 of Kindle owners to which meant that competing platforms and ecosys
push higher volumes of e-books, which had tems were controlled by the major players-primarily
significantly lower distribution costs compared to
Amazon, followed byApple and toa lesser extent,
physical books. The company's profit per title fell
Google eBookstore and Barnes & Noble. However,the
from $13 for a new release hardcover to a mere $3, but
existence of competing e-book formats meant that
the increase in volume compensated for this loss. digital books did not gain broad popularity until
Given that the gross margin on each Kindle device was Amazon launched the Kindle e-reader. E-books could
barely 5 percent andthat the margin for each e-book be purchased on the Amazon website or directly
was 20 to 30 percent, the Kindle devices were arguably a through the Kindle device via a 3G or Wi-Fi
tool for getting the Amazon ecosystem of content into connection for e-book delivery. Amazon's proprietary
the hands of the customer. system was developed initially for its Kindle devices
With each e-book purchased from Amazon,
but was later adapted to the world of applications
custom ers were further committing themselves to the
(apps) to encourage a cross-platform read ing
Amazon ecosystem, a completely unheard-of benefit
experience. Not only could books be read on the
in the tradi tional print space, where customers had
Kindle but e-books purchased on Amazon could now
complete inde pendence in choosing a retailer. Bews
be read on different platforms, for instance, on iPads
shrewdly knew that this lucrative customer base and iPhones, personal computers, and Android
needed to be locked in before a competitor, such as devices. (By contrast, books purchased from Apple
B&N, could do the same. could only be
read on Apple devices.) To protect its ecosystem, how
E.Book Ecosystems ever, Amazon made it difficult for books purchased out
side of Amazon to be accessed on the Kindle device or
The advent of e-books meant that the traditional meth through Kindle apps.
ods of book publishing and selling had to adapt to the When Amazon started selling $9.99 e-books in
digital platform. Book distributors began to develop
2007, the major book publishers were not happy to
entire ecosystems around the content, publication, and
see the ero sion of the agency-based pricing model
delivery of e-books. E-booksellers had to forge they had enjoyed for more than a century. When
relation ships with major publishers to make e-books approached by B&N in 2008 and Apple in 2009 to
available develop e-books for their

Exhibit 7 Kindle Price History

Kindle 6• E-Reader Price Over Time

$450,....- --,
$399 $399
$400

$350

$300

$250

$20
0

$15 $139

•
$79
0

$10
0

$50

$0-+- ---<
Apr-07 Nov-07 Jun-08 Dec-08 Jul-09 Jan-10 Aug-10 Feb-11 Sep-11 Apr-12
C-20 Piirt4:CneStudln

new tablets, book publishers were eager to reassert from a given retailer millable on alltheir
their favored agency-based pricingmodel B&N and mobile devices and computers.
Apple, as new entrants into thee-book market. In July 2011Apple announced that it would remove
werewillingto cede pricing control back to the all applications from its App Store that did not use
publishers inorder to rapidly gain access to large Apple's "in-app purchase" platform. Critically, this
content Ubraries for their devices. This move later platform directed a 30 percent cut of all sales to
forced Amazon to follow suit for e-book pricing in late Apple. Apple's change in policy set the stage for its
2009, though these actions launched sev eral anti-trust,
announce ment ofits Cl'Olls-platform iBooks App
price-fi.Dng lawsuits against the publish ers and bundled with the
Apple. Consumer expectation of e-book pricing had iOS s release inOctober 2011.Apple's counter-stroke was
shifted, however. For most popular titles, e-book an attempt tolockout salesbycompetitors
prices remained at $9.99 ($13.99 for new releases), a on itsdevices and to simultaneously offer its own
far ay from the old $26 price of a hardcaver book. partners' content in their place.
An area of contention among e-book.sellers was
competition for content sales through apps on smart
phones.third-party e-readers, and computers. Amazon. Bames a Noble E-Readers
Sony. Google. and B&N sold e-books through their In October 2009 B&N launched its Nook product line.
own branded apps on all the major platforms The Nook, an E lDk e-reader similar to the Kindle.
(E:dtibit 8). These apps reduced the switching costs was B&N's attempt to capitalize on Amazons
for customers by making the ORM-protected content success in e-books. The Nook featured a 6-inch .B
they purchased Ink screen, a

l!ldllllt a Amazon KindleCross-Platform Ecosystem

Buy Once, e
Read on your Kindle,PC.Mac, iPhone, iPad, BlackBerry or Android phone with
our Free Reading Apps. Move seamlessly between them with Whispersync

KindleKindla 1or KJnale for Klnd!o fOf I Pad & IPhone

BlackBeny Androkl

amazon indle
Case 1: Klndle Fire:Amazon's Heated Battle for theTablet Malket
C-21

seven-day battery life, Google's Android operating

far exceeded those offered on the tiny screen of an iPod
sys tem, native PDF support, and wireless access to the or iPhone and put the Apple experience comfortably in
B&N e-bookstore through prepaid AT&T cellular the lap of the high-end customer.
service. The iPad immediately became one of the most
B&N tried to undercut the Amazon Kindle 2 (then sought-after devices of 2010. The $499 base model had
priced at $359) by pricing the Nook at $259· A price 16GB of storage, which could be doubled for $100.
war ensued. Second-generation Kindles fell from $359 An optional cellular antenna could be purchased for
in early 2009 to $259 after the Nook's launch. As the $139 with an a la carte monthly data service plan
two largest U.S. booksellers vied for the leading from AT&T Wireless. Most Apple stores sold out of
position, e-reader prices fell to less than $200 in 2010 all models the first day. Apple sold roughly 1 million
and then to less than $loo in 2011 (for the sinlplest low- units the first week, and users continued to wait in
end devices from each product line). During this three- lines for new ship ments for weeks after its launch.
year period, sales of e-readers grew from less than The iPad broke open the long-underserved tablet
1million units per year to more than 8 million in the market, with 15 million sold by 2010 year-end.
United States. Both B&N and Amazon were focused on Critics were apt to list a litany of features-such as a
getting their custom ers to build their digital libraries as camera, USB port, and more-that the iPad "lacked,"
quickly as possible. but it became clear from the sales numbers alone that
In contrast to Sony and other early Kindle competi Apple had found the sweet spot for what consumers
tors, B&N copied Amazon's entire e-reader/e-book busi wanted in a device that sat squarely between
ness model B&N saw the writing on the wall and knew smartphone and laptop.
that its traditional book retailer business model was in In March 2011 Apple released the iPad 2, which
major decline. It secured e-book deals with its publisher upped the ante on its competitors.The iPad 2 had
business partners, outsourced the development of the
twice the processor speed (dual-core As) of the
Nook's hardware and firmware, and began a major push
original iPad. It was 15 percent lighter and 33 percent
to drive Nook sales to the forefront of its physical as
thinner and fea tured high-resolution front- and back-
well as online stores. Employee retention and
facing cameras to facilitate Apple's new
compensation metrics were amended to focus on Nook
videoconferencing app, FaceTime. Apple had
sales per shift, and company profits were divided into
succeeded in creating a thriving tablet market, selling
two categories: digital (profitable and growing for 2011)
a total of 55 million iPads since the initial launch.
and traditional (unprofitable for 2011).
Tim Cook, Apple's new CEO, became known for
B&N provided one truly unique feature for all
his fondness for pushing the idea that Apple's slew of
Nooks: customers had free Wi-Fi access to read the
"iDevices" were ushering in the "post-PC era" that the
entire B&N libraryofe-books initsstores-apopular
late Steve Jobs had envisioned. Bezos likely knew, as
pastime giventhe Starbucks coffee shops located in
March 2012 approached, that Apple would soon update
each store. Subsequent versions of the Nook added
the iPad product line and further raise the bar on the
touch support, more mem ory, a Wi-Fi-based Internet
premium tablet space. What likely most concerned him,
browser, and a "book-lend ing" capability compatible
though, was whether Apple would release an "iPad mini"
with other Nook devices. With the launch of the Nook
device at a lower price point to compete with the Kindle
Color (November 2010) and the follow-on Nook Tablet
Fire. An iPad for less than $300 would definitely change
(November 2011), B&N sought to differentiate itself as
the market environment for e-readers.
the bargain color e-reader. These devices featured
access to third-party apps in the B&N Marketplace and
support for multimedia content. Google Android Tablets
The Open Handset Alliance was founded in 2006 to
Apple Introduces the iPad support the development of a unified mobile operating
system experience for smartphones. Original equip
Apple ported its iPhone operating system (iOS) to
ment manufacturers (OEMs) Samsung, Motorola, LG,
the tablet form factor' in April 2010 with the iPad. Its
QUALCOMM, Broadcom, and HTC partnered with car
beautiful 11-inch touchscreen immediately drew in cus
riers T-Mobile and Sprint Nextel under Google's leader
tomers. The iPad was basically a larger version of the
ship to develop the Android OS. These OEMs brought a
popular third-generation iPod Touch, except Apple had
slew of slick, touchscreen-based smartphones to market.
painstakingly removed the time lag between a touch
Apple's success with porting the iPhone user expe
and an onscreen response. The responsive, pointer-less
rience (the iOS) to the tablet form factor attracted the
operating system allowed for numerous use cases that
 C-22
Part 4: Case Studies

Android OEMs. Android tablets such as Samsung's doing for 15 years." He went on to say, "We asked
line of Galaxy tablets and Motorola's Xoom tablets
our selves, 'Isthere some way we can bring all of these
came in several screen sizes (7-inch to 11-inch),
things together [Amazon Web Services, Prime, Kindle,
packed sophisticated chipsets and graphics, came
instant video streaming, and the app store] into a
with high resolution cameras, and had integrated Wi-
remarkable product offering customers would love?'
Fi and even cellular antennae in some models. These
Yes, the answer is Amazon Kindle Fire:'7 By
tablets were sold through wireless carriers as well as
leveraging its consider able cloud-based resources,
via traditional electronics outlets at prices ranging
Amazon packed numerous unique features and services
from $499 to $799 depending on the feature set.
into its new product. The Kindle Fire featured Amazon
At the Consumer Electronics Show in January
Silk, a cloud-accelerated web browser. By handling
2011, no lessthan twenty-one different tablets were
much of the computation necessary to render
introduced. This deluge, along with the release of the
webpages in the cloud, Amazon hoped that Amazon
iPad 2, led to 2011being dubbed the "year of the Silk would be a differentiator for the Kindle Fire.
tablet."6 Android tab let OEMs faced rapid The Kindle Fire came with tens of thousands of
commoditization of their devices, and competition for preapproved apps and games available for purchase
enhanced hardware specifications quickly led to and download through the Amazon app market.
shortened product life cycles, decreased profitability, Amazon provided 18 million movies, TV shows,
and lower-than-predicted sales. Apple's sale of 15 songs, and magazines available for streaming or
million (67 percent market share) iPads in Q4 2011 download. Amazon Prime subscribers received
alone suggests that 2011 turned out to be the year of the streaming access to more than 13,000 movies and
iPad (Exhibit 9). TV shows for free. All new Kindle Fires came with a
free one-month sub scription to Amazon Prime to
Introduction of the Kindle Fire encourage customer integration into the Amazon
ecosystem of content, goods, and services.
On September 28, 2011, Amazon previewed the Kindle The $199 Kindle Fire was rumored to have reached
Fire to the technical press in Seattle, Washington. The 50,000 preorders per day during the two-week preor
new tablet came equipped with a 7-inch, color LCD der period. According to Anthony DiClemente from
touchscreen, a Wi-Fi radio, a powerful dual-core pro Barclays, Amazon sold 3-5 million units of the Kindle
cessor, a fixed 8 GB of internal storage, and free cloud Fire in Q4 2011, likely generating revenues in excess of
storage for content purchased from Amazon (Exhibit $1billion. The Kindle Fire was widely rumored to be
10). The Kindle Fire came preloaded with a modified sold at cost or even at a loss, given the relatively
version of the Google Android mobile OS. sophisticated specifications at such a discounted price.
Bezos, in his announcement, referred to the Kindle Amazon, true to form, simply stated in the Q4
Fire as "the culmination of the many things we've 2011earnings report that
been

Exhibit SI Global Top Five Media Tablet Brands, Q4 2011 (Ranking by Global Unit Shipments)

Q4'11 Q4'11
2011 Shlpmentl Share QJ'11 CP'n Q:S-Q4 2011 2011
Q4'11
Bnind Shiprnentl(m Share Change () Shlpments (ln Share
Rllnk Rank (In mllllon1) ('Ml) m•lomJ l'MI) mllllon1) ('Ml)

Apple 15,430 57 11,123 64 39 40,493 62

3 Amazon 3,885 14 0 0 NA 3,885 6

2 2 Sam- 2,140 8 1,850 11 16 6,110 9

sung
3
4 B&N 1,920 7 750 4 156 3,250 5

5 Asus 612 2 801 5 -24 2,063 3

4 Others 3,122 12 2,917 17 7 9,389 14

Total 17,441
5 ·- 27,109 100 100
,_
194
·- 65,190 100
C:.se 1:KlndleFire:Amaon's Hem<! Bettlefar theTablet
M11iet C-23

bhlbl' 10 Nook, Are,and IPad Compared

Nook Tablet Kindle Fire iPad 2 (WJ.-Fi)

By Barnes & Nob
By Amazon By Appl,.

• Height .e.1 inches

• Helsiht. 7.S inches • Halslht:9.SInches
• Width:5 inches
• Width :4.7inches • Width:7.31 inches
• Thickness.0.4e inches
• Th ckness.0.45inches • Thickness:0.34 inches
• Weight: 0.88 pounds
• Welght 0.91 pounds • Weight:1.33 pounds
• Primary orientation:Portrait
• Primary orientation:Portn1it • Primary orientation:Portrait
• Color: Gray
• Color:Blaci< • Color:Silver / White. Silver I
• Spesker9 :Mono Black
• Speake,..:Stereo
• Speakers:Mono
• Operatingsyatem:Android • Operating syatem:Android • Operating system:IOS
• Slcln:Nook Color
• Skin:Kindle • Launch OS ver11on:4.3
• Uiunch OS version;2.3
• Uiunch OS version:2.3.3 • Current OS version:5.1
• Notable apps:Hulu
• Media 1treamlng:AlrPlay
Plus,NetlllX

MEMORY
• RAMslze:512 MB • RAM size:512 MB
• RAM size:1 GB
• RAM type:DDR2

BATTERY
• Cepectty:4400 mAh • Capeclty:25 Wh
• Capacity:4000 mAh
• Removable:No
• Removable :No
• Quoted usa time:7.5 hr
• Quoteduae time:9 hr • Quoted use time:10 hr

CONNECTIVITY
• Wl-R:Yes
• Wt-Fl Yes • Wl-R·Yes
• Wl-R
• WJ..FJsupport:
support:802.11n.802.11g. • WI-Flsupport.802.1ln,802.119,
802.11n, 802.11g, 802.11b,802.11a
802.11b
802.11b
C-24
Part 4: Case Studies

the Kindle Fire was the bestselling, most wished for, But would the demanding tastes of these customers mean
and most gifted device of the holiday season.
that they would take a pass on the Kindle Fire's smaller
Apple would be responding soon with its update of screen? For most media junkies, an ideal tablet would need
the iPad product line, and Bezos feared a "mini-iPad" to have a high-resolution screen and a superior graphics
at a competitive price might strike hard at his initial chipset Would these price-sensitive customers gorge on the
suc cess. The unproven Kindle Fire, despite its strong free content through the Prime Instant service and pass up
sales numbers, faced numerous challenges. Initial purchasing Amazon content? Additionally, would Kindle
criticisms of the device focused on its sometimes Fire customers increase their content consumption after
lagging display, shorter-than-advertised battery life, purchasing a Kindle, or were they at their limit already?
and a number of smaller feature-set complaints.
Although a firmware update would resolve the first Children •nd Mobile Gamers. Children were a
two of these problems, the feature-set complaints relatively untapped market for tablets. Handheld gaming
would have to wait until a new version of the Kindle devices had been around for decades, but few
Fire was released. computers or devices had been created specifically to
appeal to chil dren. Although children were not
Customer Segments for the Klndle Fire favorable targets for the commerce aspects of Amazon,
The initial Kindle Firelaunch had broad aims in an effort nor were they able to purchase apps on their own,
to probe the market and learn which use cases and they did heavily influence the purchasing behavior of
customer segments would respond most favorably to their parents. U.S. parents reported that almost 30
the new prod uct. Although t1lls "probe-and-learn" percent of the apps on their tab
process was accept able at the start, the time had come lets and smartphones were downloaded for their
for Amawn to be more focused in defining its target chil dren. Nielsen reported that in 70 percent of U.S.
audience. There were several pos.m,le target segments the house holds that owned tablets, children under the
company could consider. age of 22 used them frequently, and the primary
children's use was to play games.9
Media Junkies. Amazon already attracted the most Handheld gaming on tablets and smartphones
avid consumers of media because of its bargain prices repre sented the fastest-growing gaming market for
for content and its huge selection. The "media junkie" 2009-2011. At more than $20 billion in the United
market had evolved in the digital age to rapidly consume States and $57 billion globally in 2009, the gaming
multimedia content from numerous channels, often market was a high value prize and an untapped market
simultaneously. Indeed, one of the primary use cases for for Amazon. By the end of 2011, there were 15 billion
tablets, according to Nielsen, was in front of the TV.8 As apps downloaded from the Apple App Store and 20
all content transitioned to digital, the case for targeting billion from the Android Market, later known as
these most avid of users grew stronger. U.S. consumers Google Play. Games made up more than 25 percent of
were expected to purchase more music digitally than on all available apps and occupied 30 percent of the top
CD by 2012. Additionally, DVD sales had fallen more one hundred apps in both stores. Many parents,
than 20 percent in 2011, whereas streaming had risen by however, still balked at giving children their own $600
33 percent. Subscription streaming services such as Hulu iPad or even a low-end $500 Android tablet that they
and Netflix for video and Spotify for audio were attract could lose or break.
ing millions of customers. Amazon was primed to offer At less than $200, the Kindle Fire was considerably
an alternative to these, but only if they could get users cheaper than other tablets. The screen was made of
to switch. Gorilla Glass• and its smaller size made it more
Media junkies were quite price conscious because rugged than the iPad and some of the larger Android
of the scale of their purchasing. Amazon fit this niche tablets. This combination made it an attractive tablet
well because of its extremely competitive pricing on its for chil dren. The addition of a long-lasting battery
music, video, and reading content. The Kindle Fire plat and a small, hand-friendly, tactile rubberized coating
form was ideally suited for downloading popular con was enough to push the product to the top of many
tent through the Prime Instant streaming feature and 2011 Christmas lists.
for purchasing the more obscure titles that the long tail However, the Kindle Fire's slower processor,
demanded through the massive Amazon store. smaller screen, and limited memory capacity might
For customers who desired having tens of thousands weaken its perception as a gaming platform. Third-
of books, magazines, music, and movies available in one party develop ers might be hesitant to create special
affordable handheld device, the Kindle Fire would be versions of their games expressly for the Kindle Fire.
ideal. These developers
Case 1: Klndle Fire:Amazon's Heated Battle for theTablet Malket
C-25

would need to be managed to ensure adequate availabil represented a considerable threat to Amazon in this
ity of hit titles in the Amazon App Marketplace. emerging market.
However, bringing textbooks to the Kindle Fire
Higher Education. The higher education industry would mean updating its ftle formats significantly.
made an attractive market for transition to digital books. Digital textbooks meant Amazon had to develop the
Amazon had served the education market for years capability to handle large figure and graph display,
through its new and used textbook businesses but had robust highlighting and annotation features, and com
failed to transition these customers to digital. Amazon's plex equation display {which was unavailable in the
first attempt, the 10-inch-screen Kindle DX, had failed current MOBI format). The smaller screen was also a
to catch on broadly, likely because of its high price significant hindrance topublishers; their offerings would
point need to be redesigned for the Kindle Fire. Some publish
{$459) and its grayscale screen. By 2012, the more ers had shown willingness to do this with the B&N
than Nook and on the iPad's iTextbook platform, but
$10 billion new-textbook market had remained Amazon had yet tofinalizesuchdeals. The iTextbook
relatively untapped by digital alternatives, despite platform, though still nascent. showed what the
these customers being the largest consumers of premium product in the market might look like.
Amazon's core service: books. Amazon had yet to figure out how to move a bargain
To succeed in this market, Amazon would need to product into this space.
create a complex set of business-to-business partner
ships with colleges, universities, and their bookstores to
manage the timely distribution and updating of e-texts.
Positioning the Kindle Fire
Multiple new entrants had converged on the tablet and
Because students tended to be tech-savvy, adoption
e-reader markets at which the Kindle Fire was
of the devices was likely, if adequate content could be
targeted These direct competitors were touted by
made available. And the value proposition of reduced
analysts as direct responses to Kindle's explosive
price textbooks was compelling for students, who
growth in the e-book and periodical market and to
craved bargains on their expensive yearly book bills.
the growing read ing and web-surfing habits of the
Textbooks were exceedingly expensive compared
U.S. population in general. By Q4 2011, nearly 25
to trade books. Publishers traditionally faced inflated
percent of U.S. Internet users were estimated to have
costs as a result of limited-run productions for many
some sort of tablet device (Exhibit 11). Analysts
texts, and these additional costs were usually passed
wondered ifthe Kindle Fire could be a credible low-
on to customers. These books also tended to be con
cost entrant into the tablet market. Steven Levy of
siderably larger and contained more glossy photos,
Wired magazine wrote that "the long awaited
fig ures, and equations than the average book. The
Amazon tablet ... represents [Bezos's] most
high costs, in addition to the price sensitivity of
ambitious leap into the hearts, minds, and wallets of
students for textbooks, had led to the explosion of
millions of consumers."10
the online secondary market, from which Amazon
Amazon faced competition on numerous fronts.
had profited greatly.
One of its most promising businesses, selling e-books to
College students faced with heavy backpacks and
Kindle users, was now being attacked head-on by
steep prices for their textbooks were very interested
Apple's iBooks and Newsstand apps, in addition to
in reducing the load both physically and financially.
the stiff e-book competition it had received from B&N
Amazon was the largest online seller of new textbooks
for the past three years. B&N's Nook tablet was also
and thus had a large customer base to advertise to. This
beginning to push into the education market at
made the textbook market very attractive to Amazon,
universities and colleges in the United States. The
which could leverage its national brand and partnerships
mobile gaming mar ket was in renaissance, with
with publishers to bring e-textbooks to the entire U.S.
gesture- and gravity-based short-play games thriving
market quickly ifthe use case could be proven.
on tablets and smartphones. And media junkies had a
By 2011,B&N had partnered with several
plethora of choices in buying and consuming content.
universities to offer its Nook Color- e-reader to
For Amazon content alone, they could now find,
students through campus bookstores. Titles on the
purchase, and consume content on nearly three hundred
Nook were 30 to 50 percent cheaper than their paper
devices.
alternatives. These titles were also not transferable,
which avoided the grow ing problem-for publishers, Positioning The Kindle Fire Versus The
at least-of the secondary used market for textbooks. IPad. The tablet market was dominated by the
This limited trial by B&N first-mover iPad {2010) and subsequent iPad 2 (2011)
offerings from
C-26
Part 4: Case Studies

Exhibit 11 U.S.Tablet Sales and Forecast, 2011-2016

US consumer tablet sales forecast, 2011to

2016
(updated December 2011):

•Previous forecast: •Current forecast:

US tablet unit sales US tablet unit
sales (millions) (millions)
60.3
57.1

2010 2011
2013 2014 2015 2016
2012

Source: Forrester Research Consumer PC and Tablet Forecast, 2011To 2016 (US).
Note: Updated forecast includes ipad, Barnes & Noble Nook Color and Nook Tablet, Kindle Fire, other Android
tablets, BlackBerry PlayBook, and future Windows 8 and Windows on ARM tablets.

Source: Forrester Research, Inc.

Apple. These feature-rich devices succeeded where customers be satisfied with these uses, or would the
other tablets had failed by expertly walking the tight Kindle Fire's limitations irk them over time and lead
line between smartphone and laptop. Apple's strategy them to opt for the iPad?
was to teach its customer base to use the iOS on the A battlefield onwhich Amazon was better
iPhone and iPod Touch and then graduate them to a equipped to fight was providing a wide and deep
larger-screen device that was more fun and convenient content cat alog. Both Apple and Amazon were
to browse and play on. The couch (70 percent) and the maneuvering to rapidly cement partnerships with
bed (57 percent) were the most popular places for tablet content providers in the hopes of attracting
use, according to Nielsen Research."Analysts, of course, customers by having the largest catalog of media.
began comparing the Kindle Fire to the iPad even Early in 2012, Amazon had inked a deal with Viacom
before it was announced. Would the Kindle Fire be an to provide a large number of videos through its
"iPad killer?D Or, as one headline read. "Help! Santa Prime Instant Video service. This deal, combined
can't afford the iPad. Will the Kindle Fire do?"'• with existing partnerships with the major networks,
On specifications, the iPad was a multipurpose, made the Amazon TV offerings significantly richer
Swiss army knife-type device. Importantly, however,it than those available on competing products.
was three to four times as expensive as a Kindle Fire,
as well as quite a bit larger and heavier. Amazon had Positioning Th• Kindl• Fire Versus The
specifically created the Kindle Fire to be an afford Nook Tablet. The Nook and the Kindle Fire were
able consumption device. Would the minimum viable extremely similar (from the hardware point of view)
product'3 beat out the feature-packed iPad? Or would and were fol lowing the same pricing strategy as the
consumers become frustrated by its slower speed, earlier e-readers. Bezos worried that another price war
smaller memory, and more limited selection of apps? might ensue. B&N had pursued the additional strategy
Both devices were exceptional at consuming stream of offering subsidies for Nooks at the point of sale if
ing video, web surfing, and general reading. So would subscriptions were pur chased with the device. For
example, a $19.99 per month
Case 1: Klndle Fire:Amazon's Heated Battle for theTablet Malket
C-27

subscription to the New Yark Times netted the customer e-readers was uncertain at best. Bezos was betting that
a $100 subsidy on the purchase of any Nook product, the integration of the Kindle e-book ecosystem via the
which made the Nook tablet only $99· Bezos knew he Kindle family of apps would maintain value for these
could make this play as well but remained hesitant to special-purpose devices.
give the appearance that Amazon was willing to "give
away" its Kindles. He also knew that while B&N had Pricing and Business Model Decisions
posted a $6.6 million loss ($0.17 per share) for Q2 The Kindle Fire was no exception to Amazon's tradi
2011, it had increased its recently consolidated Nook
tional one-two punch of low margins combined with
business revenue 85 percent to $220 million in the same large-scale delivery. This model had succeeded for
quarter. the company in market after market. Bezos wondered,
Although the devices could not differentiate on hard however, whether the revenue streams from the Kindle
ware specifications, they did offer very different user
Fire would be sufficient to meet the considerable costs
experiences. Amazon'sfocus was on its own content and
of serving up the bevy of content that users desired.
services, whereas B&N focused on providing its own
Particularly important and difficult to find was the
text-based content and allowing third parties to deliver
sweet spot between the breadth of content sufficient to
the rest. The Hulu and Netflix apps came preinstalled on
attract customers and a bloated library with excessive
the Nook, along with the Google media store, Google
licensing costs. The success of the Kindle Fire business
Play. However, Amazon differentiated with its Silk
model would hinge on the demand for digital content,
web browser, which enhanced the experience of
incremental online commerce sales, and price sensitiv
browsing on a limited device. Amazon also had
ity for hardware. Bezos was betting that the integration
numerous cloud based services such as the
of Amazon content, cloud-based storage, and the con
Whispersync• feature, which kept the user's place in a
venience of Amazon Prime all at a bargain price would
given book or video across all Amazon apps.
prove to be a compelling proposition and profitable
business model.
Positioning Th• Kindl• Fir• V•rsus Kindl•
E-Reader. The traditional Kindle e-reader still H•rdware Revenues. At $199, the Kindle Fire
main tained strong appeal with avid readers for its
was well positioned to undercut the tablets currently
ability to wirelessly purchase new books and
on the market. For the first run of production, the
magazines and its eye-pleasing E Ink screen, as well
com ponents and labor were slated to be near $200.
as its long battery life. But for these same users the
This meant that Amazon was selling the Kindle Fire
Kindle faced stiff competi tion from newer tablets to
at cost as a loss leader for content sales. Many
be customers' "third device"
analysts won dered if Amazon should have gone even
(the first and second being a laptop and a
lower with the Kindle Fire's hardware price in order to
smartphone). For avid readers, the new Kindle
emphasize the "razor-razorblade" modeJ1s that
Touch ($99 for the option with advertising "offers" on
Amazon was betting on. They pointed to the cellphone
its lock screen) was an optimum device, but these
market, in which devices such as the iPhone (which
same users might con sider consolidating their
cost more than $600) were subsidized heavily by
devices if a strong reading experience was offered on
wireless carriers in return for a long-term
one of the competing tablets and if they could get the
subscription contract. Was it possible for Amazon
battery life they wanted The youngest and often most
to offer the Kindle Fire for $149, $99· or even free, in
tech-savvy student customers were already reading
return for customers signing up for an enhanced
more and more online, eschewing traditional reference
version of its Amazon Prime subscription service that
sources in favor of wikis and biogs. A web-enabled
would require them to commit to purchasing a mini
tablet offered a strong use case for these customers, as
mum amount of content and products over a two-
did an electronic medium for their books for class.
year period? Other experts felt that Amazon was
Would the Kindle Fire cut into the business of
leaving money on the table because the Kindle Fire
selling Kindles? Bezos believed that customers should
was already priced so far below the iPad.
want to buy both.... His optimism that both the Kindle
Fire and the Kindle would fmd places in his
Cont•nt Rnenu••·As more and more music, mov
customers' lives seemed to signal that these devices
ies, and books were consumed in digital form, online
might con tinue to get cheaper and cheaper.Given the
content revenues were expected to be a key driver of
tough com petition for e-readers from tablets and
revenues from Kindle Fire customers.
larger-screen smartphones, the future profitability
of dedicated
C-28
Part 4: Case Studies

ABI Research estimated that an average Kindle all the ads on the Kindle Fire. An estimated 20 per
Fire customer would buy about $10 per month in cent of owners were expected to choose this option.
content (music and movies), which would increase 10 Advertising impressions would decrease in
percent annually over the expected two-year life of subsequent years, but the downward pressure on CPM
the Kindle Fire. Amazon netted a gross margin of 30 would offset the increase in installed base so that
percent on content sales. An RBC Capital survey of advertising reve nues would essentially remain flat in
Kindle own ers found that the average customer subsequent years.
purchased three e-books per quarter, at an average
selling price of $10 per book. Amazon's gross margin
Appllcetlon Marketplace
for e-books was 20 per cent. Amazon expected a 10 Revenues.TheAmazon App Marketplace, a
percent increase in e-book purchases on an annual curated version of the Android Market, ensured an
basis. optinium experience for its custom ers.App purchases
promised to be a significant source of revenue for
Commerce Revenues.Amazon had boasted to its Amazon. In a span of just eighteen months, the
investors that Kindle owners purchased 3.3tinies as Amazon AppStore had grown to 50,000 apps after it
many e-books than print books once they switched to debuted in March 2011with just 4,000. Amazon took a
digital. Bezos hoped that the Kindle Fire would 30 percent cut of the sales price (the same percentage
have a simi lar effect on sales of physical products Google and Apple took from their own app stores). It
sold on its web site. Customers in the post-PC era was estiniated that the Amazon AppStore had logged
would increasingly be making their purchases based about 180 million downloads over the first eighteen
on convenience. The Kindle Fire offered a pleasing months. Research also indicated that about 10 percent
color video-capable device ideally suited to shopping of apps were paid apps, and the average paid app gen
from the couch. The dedi cated Amazon device, erated $1.29 in the Amazon AppStore. App revenue
combined with the convenience of Amazon Prime, was estimated to increase by 20 percent each year.
would likely motivate customers to
increase the proportion of online purchases they made
through Amazon. The average Kindle Fire customer was Conclusion
expected to purchase about $50 per month in incremen Amazon was betting that the end-to-end Kindle Fire
tal products and services from Amazon, at an average
experience was superior to buying from Amazon on
gross margin of 20 percent. Amazon estimated that
the iPad. Apple, on the other hand, was betting that
these commerce purchases would increase by 5 percent
the Kindle Fire was not quite good enough. As Bezos
per year. considered the myriad announcements by competitors
likely to come in the following few weeks, he still won
Advertising Revenues. Amazon had built dered whether his gamble on the tablet market would be
adver tising for its retail goods and services into the a success. By reaching further into the hardware market,
pricing model for the newest generation of Kindle he had exposed Amazon to the grueling product cycles
e-readers. The Kindle device became an and often-fickle whims of technology customers. Would
omnipresent billboard for Amazon to serve ads to these customers appreciate the Kindle Fire's value prop
its customers. Millennial Media, the second-largest osition? Who should be the core target for the product?
mobile ad network in the United States, reported Would the Kindle Fire deliver on the various revenue
at the end of 2011 that the Kindle Fire was seeing a streams laid out for it? Or would customers just load up
daily increase of 19 percent in overall ad on the free content and drain Amazon's servers on sub
impressions on its network. That trans lated to a sidized hardware? As the embodiment of the Amazon
monthly rate of about 300 million adver tising experience, the Kindle Fire was particularly well
impressions. Amazon could expect an average
situated to signal toinvestorsthe futuregrowthprospects
CPM (revenue per thousand impressions) of about
of Amazon's businesses.
$10. However, users could pay $30 to permanently
dismiss
C:.se 1:Klndle Fire: Amaon's Hemd Bettlefar theTablet M11tr.et c-a

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