Posted February 11th, 2012 By Blandine Genix
Amazon announced their fourth quarter earnings on January 31. Amazon’s sales fell short of analysts’ estimates, sending the retailer’s shares plunging in the market, despite an impressive $17.4 billion in net sales this quarter, a 35% increase vs. year ago.
This strong sales increase has been largely driven by the success of the Kindle Fire: “our best selling product across both the US and Europe” said Jeff Bezos, founder and CEO of Amazon.
Amazon didn’t release the exact Kindle Fire sales numbers, but analysts estimate Amazon sold between 5 and 6 million of the Android-based, 7-inch display, 3G only device (yes, no wi-fi, but it comes with a one month free Amazon premium subscription) since mid-November. This number is significantly lower than the 15 million iPads sold in Q4 but it makes the Fire a strong second in the tablet market. The secret? Its very attractive price point: $199.
At this price, Amazon is most likely selling the Kindle Fire at a loss, but its strategy is simple: to recoup the loss of the device with the revenues from the paid media (movies, music, books, apps) consumers will buy from its online store. This is a radically different strategy from Apple who is making its profit on the hardware and not so much on the content. The coming six months will prove if Amazon’s strategy is viable and successful. But in the meanwhile, the Kindle Fire opens the tablet market to new consumers and contributes to its exponential growth: According to a Pew Internet study, the share of adults in the United States who own tablet computers nearly doubled from 10% to 19% between mid-December and early January.
Driven by a lower price point and e-reading features, the Kindle Fire tends to skew more female and attracts slightly lower incomes: Parks Associates in its “Consumer Decision Process: Holiday Intentions" study reports consumers 45 or older prefer the Kindle Fire, while those with higher household incomes and higher education prefer the iPad.
What does it mean for advertisers and marketers?
First, the growth of the tablet market offers additional brand advertising opportunities. Early studies have shown that readers are very engaged with tablet advertising. Digital magazines tend to immerse the readers in highly designed editorial content that benefits the ads and the interactive and engaging features of the ads further enhance this experience. With the growth of the tablet audience and the tablet inventory, marketers will be able to achieve more reach and more impact, hopefully at an affordable price.
Second, the increased share of the android Operating System also means that the tablet market is getting more fragmented and advertisers should now ask themselves how many different advertising formats they should develop and support. This trend will not slow down with the arrival of the Google tablet that is expected to be released in late spring. According to BGR, Google may go after the Kindle Fire with a low price-point, a 7-inch screen, which means they will have to make money elsewhere, and for Google it means media sales (Google music, Google Apps, etc.) but also… advertising.