Fight! Amazon vs Apple for vertical dominance

The Kindle Fire, announced this week, represents Amazon's first attempt in earnest to create a competitor to Apple's iPad and associated media sales. This one's been shaping up for years, with Amazon leading in value and back-end muscle with EC2 as Apple led the way in design, devices and commerce with the iTunes store. The Kindle Fire is the first genuine multi-role device Amazon has branded, capable of handling games, movies, music and books.

While it's not a toe-to-toe iPad competitor - at 7" it's too small to make that claim - it's a capable tablet that leads the way in price/value at $199. This opens the door to sales vastly in excess of the volume the iPad can produce; Kindle will sell an estimated 17m units across all models in 2011. The iPad is projected to sell roughly 40m during that time, but I believe the Kindle Fire may approach that next year as consumers recognize they can achieve much of the value of the iPad, as a casual browsing/gaming platform, in a much less expensive package. Households already owning an iPad may add a Kindle rather than a second iPad. In the long-run the Kindle is priced like a game console or an iPod Touch, a far more casual purchase than the $499 minimum iPad.

The biggest difference lies in strategic value. As Jeff Bezos claims, Amazon believes in creating: "premium products and offering them at non-premium prices." Amazon can and does sell the Kindle line near break-even in order to create a long-term channel to it's content and services. Apple has artfully played both sides of this game - selling beautifully designed products at a premium price AND earning significant profits on the content it offers through iTunes.

In the broad market there is room for both approaches. Just as Mercedes and Toyota can both prosper in the automotive market, Apple and Amazon can coexist. However Apple's continued dominance of the tablet market and associated services has just been called into question.