Amazon Slips

Fresh off the heels of Netflix's earnings report last night, Amazon (AMZN) posted their earnings today. Needless to say, they were very disappointing:

Amazon.com Inc. is still growing at a fast pace, but Wall Street's concerns about the online retailer's margins are likely to grow after the company posted a 73% drop in quarterly profit Tuesday.

Their margins are starting to kill them:

Sales during the third quarter ended in September rose 44% compared to the same period last year, Amazon said. That's roughly in line with expectations and consistent with growth seen in recent periods. But as Amazon has roped in more sales, it has spent heavily on the expansion of shipping centers and data infrastructure, undercutting margins.

Operating margin as a percentage of world-wide sales slipped to 0.7% in the third quarter, from 3.5% in the period last year, Amazon said.

This was one of the main concerns of investors when Amazon introduced the Kindle Fire. The stock tumbled 12.39% in after hours trading. Much of this due to the gloomy fourth quarter outlook:

"They're basically calling for a break-even fourth quarter," said Ken Sena, an analyst who covers Amazon for Evercore Partners, "which is definitely disconcerting for investors."

The culprit of the margin cut looks like it's the Kindle Fire:

Szkutak danced around the culprit a bit, but the Kindle Fire, priced at $199, is definitely deterring higher earnings estimates. Szkutak also touted the long-term plan for the Kindle Fire, describing it as a “premium device,” and that Amazon takes all of the economics of the Kindle business into account, ranging from the lifetime value to the content available on the tablets and e-readers.

Because the Kindle Fire is sold at a loss, it might be the case that it won't pay off for a while. The real money will be generated in apps, Amazon Prime, and the e-books. For the time being, it's concerning because Amazon is still a strong company. In addition, it compounds the fact that in a week, we've seen Apple, Netflix, and Amazon all miss targets.

The current tech climate is alarming.

Get Your Kindle Fire

Now that the Kindle Fire has officially been announced, we can stop speculating and start anticipating it. The Amazon Tablet will go on sale for $199 which prices it well below the iPad. In fact, you could buy two Kindle Fires and a Kindle Touch for the price of an iPad. The Kindle Fire has already had an impact on the tablet market as Blackberry lowered the price of its Playbook. In my last post, I suggested that Amazon was taking a loss to drive their content sales, and UBs agrees: Then you get to the actual product. With all the hoopla surrounding the Kindle Fire, the pricing suggests it's not going to be a direct competitor with the iPad. However, it appears that the Kindle Fire will tell us whether there is a tablet market outside the iPad:

If the sum of all is more than the value of the individual platform products, we should be seeing substantial interest in the Kindle Fire – more than in any other Android tablet to date. The Kindle Fire will deliver answers that no other Android tablet has done so far. Ultimately, I believe that the Kindle Fire will either confirm claims that there is a tablet market outside the iPad or silence most proponents of this market.

The 7 inch tablet could just be Amazon's initial entry into the market, to establish its presence. There are rumors that Amazon will come out with a 10 inch tablet following the initial release:

According to a Digitimes report, Amazon has tapped Foxconn to produce the larger model. China-based Foxconn is also responsible for manufacturing the bulk of Apple’s iPad. Another Chinese firm, Quanta, however, is manufacturing the 7-inch Kindle Fire. Quanta is also the manufacturer of the BlackBerry PlayBook, although it recently announced that it was cutting production lines for RIM’s tablet, dismissing 1,000 employees from its Taiwan factory.

Regardless, the Kindle Fire seems to already have stirred excitement amongst the masses. Amazon is already cleaning up:

eDataSource, a leading provider of online competitive intelligence, estimates that sales of Amazon's new Kindle Fire reached 95,000 units during the first day that the device was made available through Amazon's website.

The question is why will this be a hit as opposed to other Android tablets. Amazon has let it be known what their tablet is about:

The Kindle Fire has a very smooth purchase-and-use path. Boot, choose from a curated list of options, buy something, enjoy. It's different enough from the successful iPad in size, usage and price that this holiday season may finally see us go from a one-tablet nation to a two-tablet zone. Anyone else trying to break through with a tablet should take a lesson from Amazon here. Tell us what it's for.

The Kindle Fire appears like it will have a better user experience than the other Android tablets because its users will know what to expect when they use it. Apple does a great job of catering first to the user then working on the product that caters to those needs. The Kindle Fire could be the product that combines the great hardware of Android with a positive user experience.

Amazon Comin' Yo

So Amazon has decided to unveil a new tablet:

(Reuters) - Amazon.com Inc (AMZN.O), which revolutionized reading with its Kindle e-reader, is expected to unveil a tablet computer next week that analysts say will seriously challenge Apple's (AAPL.O) market dominating iPad.

Indeed, the big question is whether it will challenge Apple's iPad. The iPad has been hugely successful and Apple is selling every tablet that they can make. Everyone wants to know if Amazon's tablet, which will reportedly be called the Kindle Fire, will be a threat to the iPad:

Ultimately, it’s a question of how much Amazon has in common with Apple. If they have enough of the same DNA, that fact may separate the color Kindle apart from every other Android tablet on the market — and give Cupertino a run for its money.

The big deal with Apple has been their execution in delivering their products and for the iPad, it's been with Apps:

Today, there are almost half a million iPhone and iPod apps. In the space of less than two years, there are almost 100,000 iPad apps. I don’t know exactly how many Android tablet apps there are, but I do know that any time I’ve used an Android tablet, I have a heck of a time finding decent Android tablet apps (there are thousands of excellent Android phone apps). Tablet developers are clearly building their iPad versions first and, given the 25 millions iPads already sold, likely achieving their greatest success on the iOS platform.

Mashable believes that Amazon has a similar built in ecosystem that'll enable the Kindle Fire to thrive:

Amazon has one big advantage over virtually every other Android Tablet manufacturer: it understand user interfaces. No other competitor, aside from Apple, runs such an active and varied website for consumers. The Seattle-based retailer has been perfecting Amazon.com’s interface for 16 years. When Amazon was just books, it was pretty straightforward — but as the company added other product categories, it struggled to find an rational interface metaphor. Even so, Amazon was the acknowledged leader in the space. When it introduced tabs, all other online retail sites tried them as well.

Then there's pricing:

But I doubt Amazon cares if it takes a small loss on the tablets. They’ll be putting a fully functional, Internet and media-ready portal to all of its products in the hands of millions of existing customers. (How many people do you know who do not have an Amazon account?)

Amazon has features like Amazon Prime and the Amazon App Store which can give it a pricing advantage over the iPad, while still being a profitable entity for the company.

PC World says Amazon needs to get this right:

The hat trick with an Amazon tablet will lie not with whether Amazon can offer a device that integrates its storefront and services—that's an easy bet, and a foregone conclusion given its history with Kindle e-readers. The real question is whether the company can produce a tablet with an interface that's natural, visually pleasing, and functionally spot-on for how it will be used by consumers.

The Tablet market isn't easy to break into:

If, with this tablet, Amazon can finally make a product that's a standout star with its interface and usability, the tablet has legitimate potential to be a threat to Apple's iPad. But if the company doesn't nail the interface, it runs the risk of offering yet another ho-hum tablet in a crowded landscape, albeit a ho-hum tablet with, presumably, a better-integrated media consumption and e-book experience than most. One can hope.

Amazon is late to the Tablet party, but only Apple is really having fun in the party. Other companies have made attempt to compete with the Cupertino giant, but have come up short. The iPad is a jack of all trades, and it has the support of Apple's application Arsenal. Amazon seems to be the one company that can compete with Apple on the application front, with its App Store, but the fact is the tablet, itself, has to be good in order to compete.

Amazon is taking a risk by entering the tablet market, but if they get it right, it could be a huge win for the company.