Apple (AAPL-Q565.25-16.57-2.85%) was the main winner here, taking 68 per cent market share, up from 54.7 per cent in the fourth-quarter of 2011. As tablet sales overall slowed in the first quarter of 2012, Apple continued to dominate the market profoundly, and this could potentially be the beginning of the end for Amazon, if it fails to innovate.
One hedge fund analyst, who declined to be named, expects Amazon to release another one or two versions of the Kindle Fire to try to get it right, but if they don’t, Amazon could be in big trouble. “Game over,” he said, when asked if Amazon was in trouble.
“Apple reasserted its dominance in the market this quarter, driving huge shipment totals at a time when all but a few Android vendors saw their numbers drop precipitously after posting big gains during the holiday buying season,” said Tom Mainelli, research director, Mobile Connected Devices at IDC in the press release. “Apple’s move to position the iPad as an all-purpose tablet, instead of just a content consumption device, is resonating with consumers as well as educational and commercial buyers.”
A major factor in Apple reasserting its dominance appears to be lowering the price on its iPad 2 to $399 from $499, which it did when it announced the new iPad in March. “And its decision to keep a lower-priced iPad 2 in the market after it launched the new iPad in March seems to be paying off as well,” said Mainelli in the release.
The complaints about the Kindle Fire include a lack of features and shoddy Internet browsing, and perception of the product is such that rivals feel comfortable getting in little digs.
Barnes & Noble (BKS-N17.91-0.07-0.39%) CEO William Lynch said on the company’s fourth-quarter conference call he had heard about some “quality issues with our biggest competitor” on their new product, with most presuming this to be the Kindle Fire. Lynch said he heard of return rates between 15 per cent and 25 per cent for the tablet.
Another hedge fund analyst, who is short Amazon, believes the company is out of its league when it comes to the competition in the tablet space.
“The Kindle Fire is behind. [Amazon] is competing with engineering companies, like Apple. Getting kicked out of Target (TGT-N55.65-0.90-1.59%) was a big deal with Target fighting back on show-rooming. It could come out of a lot of retail destinations,” she said over the phone.
Amazon has to get the Kindle Fire strategy right because the tablet, which it sells below cost, is supposed to be the main driver for growing media sales, currently 30-40 per cent of its overall revenue. The company won’t be able to deliver revenue growth of 20 per cent year-over-year if media is falling, the hedge fund analyst said. “It’s still crucial to their success,” she said.
As rumours of a mini-iPad swirl, Amazon may have to announce a larger product to keep Apple from taking even more market share than it already has.
IDC’s Mainelli said that he expects a “new larger-screened device from Amazon at a typically aggressive price point,” otherwise Apple may wind up completely shutting Amazon out.
The hedge fund analyst who is short Amazon put it best. “If Apple has a $299 offering for Christmas, I don’t think a $100 difference will hurt Apple. Why would anyone buy Amazon when you can buy Apple?”