Amazon Kindle Fire - Harvard Business Case Study

1. Amazon
Kindle Fire
Ralph Mao 135813178 | rmao5@myseneca.ca
MKM 805 – Professor Duncan Reith

2. 2
E-Readers Tablets
Customers Consumers are willing to read
large content digitally, hence
willing to give up traditional books
for e-readers
Consumers looking for a device
that fits right between a laptop and
a smartphone, in terms of size and
functionality
Jobs to be done • Read E-Books, Digital
newspapers, Digital articles etc.
• Read E-books & other Digital
Content
• Play Music and Movies
• Browse the web
• Play Games
• Cellular Usage
Substitutes • Other E-Readers
• Books
• Newspapers
• Other Tablets
• Books / Newspapers
• Smartphones
• Portable Media Players
• Laptops
Competitors
For Amazon
• Sony : Sony Reader
• iRex : Iliad
• Barnes & Noble : Nook
• Apple : Ipad, Ipad mini
• Samsung : Galaxy Tablets
• Motorola : Xoom Tablets
• Other Android Tablets
Consumers want a 1-device solution to all their entertainment, leisure
and other functional needs such as music, movies, reading, gaming,
web-browsing, email, shopping etc.
Current Competitive Situation in the Tablet Market
In spite of being a tablet, Amazon has to be open to the fact that Kindle Fire faces competition
from not just tablets but also other sources of entertainment and leisure such as Music players,
Books, smartphones etc.
Features Kindle Fire Nook Tablet IPad 2 Android Tablets
Hardware
• 7-inch display
• 1024x600 res
• 512 MB RAM
• 7.5hr batter life
• Un-expandable
Memory
• No Camera
• 7-inch display
• 1024x600 res
• 1 GB RAM
• 9hr battery life
• Expandable
Memory
• No Camera
• 9.7inch display
• 1024x768
• 512 MB RAM
• 10hr battery life
• Un-expandable
memory
• Camera
• 7-11inch display
• Sophisticated
graphics and
processors
• Expandable
memory
• High-res Camera
Price $ 199.00 USD $ 249.00 USD $ 599.00 USD $ 499.00-799.00 USD
The table above, shows that Amazon Kindle cannot compete against its competitors tablet on the
basis of hardware offerings and hence Amazon should focus on something that it can do better
than the competitors.
Amazon’s business of
selling e-books to kindle
users now being attacked
head-on by Apple’s iBooks
and Newstand apps
Other Challenges
B&N’s Nook tablet
beginning to push into the
education market at
various Universities and
Colleges
Android tablets with
Google App Store and
sophisticated processors
were tapping into the
apps and gaming market
E-readers Vs. Tablets
Understanding the market in depth is key for Amazon to recognizing who it’s competitors are and how their
products affect them

3. 3
Effect on Amazon Kindle E-reader
What we offer with the Kindle Fire:-
- Free 1-month Subscription to Amazon Prime
- Amazon Silk, a cloud-accelerated web
browser that enhances web-browsing
experience
- Free cloud Storage for all content “purchased
from amazon”
- Loads of preapproved apps that were ready
to be downloaded or purchased from the
“Amazon App Store”
What we can expect:-
- Encourage customers to buy more from Amazon by offering benefits of Amazon Prime for free for a limited time
- More time spent on Amazon Market Place due to better web browsing experience which increases the chances of
selling more
- Encourage sales from the Amazon App Store by keeping the apps ready for purchase/download
- Lock customers to Amazon by offering free cloud storage for content purchased from Amazon
Amazon Prime Benefits:-
For a Subscription fee,
Amazon prime Users could
get:
- Free Shipping
- Faster Delivery (1 day, 2
days)
- Streaming access to more
than 13,000 movies and
TV shows free.
Other Factors:-
In order to protect its
Ecosystem, content purchased
from outside the Amazon app
could not be accessed through
Kindle device
Amazon’s proprietary system
encouraged cross-platform
reading experience thus
locking customers in
Achievement of long-term goal, of building an Ecosystem of Amazon Customers, will require putting Kindle Fire into
the hands of the customers
Amazon Kindle Fire makes it easier for these consumers to access the whole Amazon Market Place
through its integrated Amazon apps and hence, Kindle fire not just provides a solution to a
consumers entertainment and leisure needs, but also as a 1-stop shop for all his shopping needs.
It is important for Amazon to lock in its
customers before its competitor does
People are willing to read large amount of content
digitally and this means a growth in the E-book market.
However, it is very important to note that a consumer is
always looking for a single solution to multiple problems.
And this insight lead to the introduction of tablets that
could fulfil the need of e-readers as well as other
portable entertainment devices
Hence, dedicated E-readers were losing their value as a
specialty device as more and more devices with the
capabilities to multiple jobs for a consumer were being
launched.
With the future profitability of Kindle E-readers at huge
risk, it is only smart to utilize Amazon’s cloud integration
system to encourage existing kindle e-reader users to
easily and conveniently upgrade to kindle fire because if
Amazon does not kill its dedicated E-reader business then
someone else will do it anyway and its only smart to use
resources on something that has a profitable future
How can Amazon use Kindle Fire do to sell more products to more people?

4. •Power Users
•Moderate Users
•Not a Very Frequent User
Frequency of
Usage
•Portability is the top-most priority (Want Small Device)
•Right balance
•May compromise portability for a bigger screen size
Size of the
device
(Portability)
•Entertainment Freaks (Music, Movies, Comics, Games)
•Scholar (Textbooks, Notepad, Schedule-Calendar)
•Internet Fanatic (Social Media, Online Shopping, Email)
•Workaholics (Extension of PC/Laptop for work)
Jobs to be
done
•Thrifty (Highly Price Sensitive)
•(Moderately Price Sensitive)
•Extravagant (Low Price Sensitive)
Price
Sensitivity
4
Basis of
Segmentation Relevance
Helps us sort consumers based on
how frequently he/she uses a tablet
which could be helpful in some
cases But fails to answer the more
important question “For what
purpose?” do they use the tablet.
Sort customers by what size of
device they prefer but doesn’t
answer what purpose they use the
device for
Explores the solutions provided for
the consumer to better target the
audience with what the product has
to offer
Tells us what price consumers are
willing to pay for tablet but not
what they need it for
Segments
• It is important to segment the
consumers on the basis of how well it
defines the consumers under that
segment in terms of what Amazon is
trying to achieve.
• In this Case Amazon is trying to get
Kindle Fire into the hands of the
customers who would subsequently
buy more products from amazon
market place. Thus it is important for
Amazon to know about how relevant
is the target segment
Knowing how frequently consumer
use tablets does nothing to show
whether the consumers will need to
purchase content or any other
products from Amazon
Importance of Apps and Content
The size of the device will not affect
the customers decision regarding
the importance of apps and
content. According to the research
from Nielson, customers use the
tablets at home (couch, bed)
The importance of apps and usage
depends upon the need and type of
activity that the consumer desires.
This will help Amazon sell content,
apps, games etc.
Those segments of customers that
are attracted to Kindle Fire because
of its low price point will eventually
be engaged to buy apps and
content from Amazon due to its
seamless integration.
Jobs to be done and Price Sensitivity are the 2 Basis of meaningful segmentation for Amazon as it describes what
purpose consumers would buy a tablet for and at what price

5. 5
Segments Purpose behind using a Tablet Behavioral Demographics Fit with Amazon Kindle Fire
Entertainment
Freaks
• Frequently Listen to Music and Watch
Movies
• Occasionally Read Comics and Novel
• Occasionally Play Games
Usually assertive and more often engaged in
multiple entertainment content. Willing to
pay for content to keep being entertained.
Entertainment freaks are usually aged
between 18-35 years male & female
with college or higher education with an
average income of $30,000 and above
Kindle Fire is equipped with ability to provide
customers with multimedia content-movies, music,
books, games. It is also suited for streaming
popular content through the Prime Instant
streaming feature
The Scholar
• E-book (Textbook)
• Notebook to take notes in class or
elsewhere
• As a personal Calendar to keep track
of schedules
Introverts who prefer a single device for
academic needs.
Usually have a collection of hardcopy and
soft copy scholarly materials
Aged between 22-60 years male &
female, enrolled in higher education or
graduated with average income of
$40,000 and above
Kindle Fire lacks the capability to handle large
figure and graph display, robust highlighting,
annotation features and complex equation display
to incorporate textbooks. The small screen size acts
a barrier to publishers, this would require Amazon
to redesign Kindle Fire
Internet
Fanatic
• Sending Messages through E-mail or
Messengers
• Frequent Web browsing
• Frequently visiting Social Media
platforms
• Often indulge in Online Surfing and
Shopping
Internet Fanatics are heavily engaged on
multiple social media handle. They spend a
lot of time surfing the web for various
reasons one of which is online shopping.
Aged between 16- 40 years with
average annual income of at least $
20,000 and above and enrolled in high
school or higher education or
professionally engaged
Kindle Fire features Amazon Silk- a cloud
accelerated web browser to optimize performance
(seamless web browsing experience- renders
webpages quickly)
Creative
Workaholic
• Use it as an extension of PC or Laptop
for work
• Graphic design
• Audio Production
• Video Editing
These are introverts with high imaginary and
experimenting ideas, very proficient on
electronic and computerized devices
Male and female professionals of
between 18-45 years olds, mostly out of
school with at least a college degree
with an average income of $30, 000 and
above
Kindle Fire lacks hardware capability to perform
high end functions like graphic design, audio
production, video editing
Segments Functionality Brand Image Fit with Amazon Kindle Fire
Thrifty
Only convinced to buy the product, if the product has loads of
features and is cheap
Doesn’t care about Brand Image, but cares
just about the value in terms of price Kindle Fire offers high functionality in terms of its product price thus
making it high value for the money. It is also a provider of huge
catalog of content that is wide, deep and cheap compared to its
competitors
Moderate
Look for a reasonable balance between the price and functionalities
offered in a product
Usually choose a popular brand but may
consider a less popular brand if convinced
otherwise
Extravagant
Care less about the price but more about the prestige and self esteem
that the product offers to him/her
Brand image means everything to this
segment and may overlook functionalities
because of that
Kindle Fire is an affordable solution that caters to the functional needs
of the consumers rather than serving self-esteems needs
Amazon Kindle Fire should be targeted towards price sensitive people who have needs related to entertainment
and internet usage as it gives Amazon great opportunity to sell its content or products
Given that Amazon was low priced and
was better equipped to provide a wide
range of content catalog compared to its
competitors, it is safe to say that Amazon
Kindle Fire would be attractive to price
sensitive people with a high demand for
entertainment needs such as music,
movies, novels, web surfing, online
shopping etc.
This would help Amazon to achieve what
it is trying to do by putting Kindle Fire in
the hands of the Consumer.

6. 6
To successfully position Kindle Fire, Amazon has to leverage its product offerings in order to appeal to their target
audience and be perceived as a one stop solution for all its entertainment and shopping needs.
High Price
Low Price
High
Functionality
Low
Functionality
IPAD MINI
IPAD
KINDLE FIRE
Cluster Where to Play and Where Not To?
High Price + High
Functionality
Competing in this cluster puts us in risk
because the market is already saturated and
hence there is not much room to play, also
high price doesn’t appeal our target audience.
High Functionality +
Low Price
This is the right spot for Kindle Fire because
it caters to the needs of our target
customers- a device that provides high value
for money in terms of functionality (size,
ease to use, product features)
Low Functionality +
Low Price
Kindle Fire is packed with numerous features
making it a high functional product, hence
doesn’t fit this cluster.
High Price + Low
Functionality
The cluster doesn’t define what our product
stands for. Our product is one stop shop for
all functional needs at a reasonable price.
NOOK
SAMSUNG
XOOM
Brand Image/ Low Prestige
High
Functionality
Low
Functionality
IPAD
KINDLE FIRE
Brand Image/ High Prestige
NOOK
IPAD MINI
XOOM
SAMSUNG
Cluster Where to Play and Where Not To?
High Prestige + High
Functionality
Since the market in this cluster is already
saturated with competitive brands creating
their loyal set of customer base and a strong
brand image, this isn’t the right place to play.
High Functionality +
Low Prestige
Amazon Kindle Fire is made for people who
look to fulfil their functional needs rather
than prestige needs, hence this is the cluster
where we fit.
Low Functionality+
Low Prestige
Kindle Fire is highly functional trying to cater
the needs of the people and provide
convenience.
High Prestige + Low
Functionality
Kindle Fire is not targeting consumers who
are brand conscious rather targeting people
who would consider buying for functionality
than prestige. Thus this isn't the right spot for
us.
Low Price
High Content
Availability
Low Content
Availability
IPAD
KINDLE FIRE
Cluster Where to Play and Where Not To?
High Price + High
Content Availability
Very few customers would want to pay high
prices for the content that is available with
competitive brands at much lower price. This
is where Amazon fills the gap and hence this
cluster is not the right pick.
High Content
Availability + Low
Price
This cluster fulfills the requirement of our
target audience- Kindle Fire provides high
content availability including music, games,
shopping, videos, apps, magazines,
subscription to Amazon Prime at a low
price. Also Kindle Fire is the only one in this
cluster and can dominate , hence this spot is
the perfect for Kindle Fire
Low Content
Availability + Low
Price
Kindle Fire is essentially a device developed
for data consumption. Hence this cluster is
not a perfect spot for us.
Low Content
Availability + High
Price
Since our target market has a need for a
device that provides high content availability
with a low price this cluster isn’t the right fit
for us.
High Price
NOOK
IPAD MINI
XOOM
SAMSUNG
“For the price oriented individuals, Amazon Kindle fire is the one stop solution for all entertainment and shopping
needs, because Kindle Fire has the largest catalog of content along with cloud integrated Apps that make your
shopping experience seamless with products delivered at your doorstep in less than 2 days”

7. 7
Selling the Kindle Fire at $99 is a strong competitive pricing that ensures profitability and is also in alignment with
Amazon’s concern about brand image
Selling Price Details and Overall Effect Effect on Consumer Effect on Amazon
$99.00
Puts Kindle Fire at a direct price
competition with nook tablet as it
is offered at the same price.
Amazon can bundle this with an
extra month of free amazon
prime services and with a small
minimum purchase compulsion in
those next 2 months.
Consumers may be more willing
to buy kindle fire as it would be
one of the lowest priced Tablets
in the market. It may not have a
few features of the Nook Tablet
but the large variety of content
that Amazon offers, can be
attractive.
• Make a loss of $101 on Hardware Revenue
• Minimum purchase compulsion will cover up
for loss on hardware revenue
• Will encourage people to buy more products
due to quick delivery and exclusive prices as
amazon Prime benefits
• Can lead to more revenues through sales of
content or any other products
• Can be a great for encouraging Kindle E-
readers to upgrade to Kindle Fire
$149.00
Kindle Fire will still be costlier
than Nook Tablets which are
being sold at 99$ and may still be
losing out on a few valuable
customers may still choose Nook
Tablet to save $50
This can increase the price value
of Amazon Kindle Fire and will
increase its attractiveness to Price
Sensitive consumers
• Make a loss of $51 on Hardware Revenue
• Can increase revenue from other sources
such as Content sales, Incremental sales, App
Sales etc. due to more sales of Kindle Fire
• May or May not be low enough to encourage
existing Kindle E-reader users to upgrade to
Kindle Fire
$249.00
This may not be a smart move as
it would not be in sync with the
positioning of Amazon Kindle Fire
as a low price tablet and one our
target segments being price
sensitive customers can actually
can cause more harm than
benefit
Consumers are probably going to
choose other android tablets
around that price as those
devices will have more
functionalities compared to
Amazon Kindle Fire, even if they
offer amazon Prime benefits.
• Make a profit of $49 on Hardware Revenue
• Since less people are likely to buy it,
Revenues from other sources will possibly go
down and will lead to an overall decrease in
the contribution margin
• Very low chance of getting existing Kindle E-
reader Users to upgrade to Kindle Fire
$199.00 Refer to Exhibit 3
• Selling the Kindle Fire at $99.00 would be a good
decision. Even though it would make a loss of
$101.00 on the sale of each Kindle Fire, the
revenues from other sources will definitely off-
set those losses and in fact help Amazon make
huge profits.
• This pricing will let us compete directly with the
Nook Tablets and with the wide variety of
content, Amazon should successfully be able to
attract many customers who would rather
choose $99 Nook than $199 Kindle Fire.
• This will also help us avoid getting the image of
“giving away Kindles for free” which is a big
concern
• B&N will find it very hard to reduce their prices
any further as they do not have as much
resources as Amazon and even if B&N takes the
price war further, there will be only one winner,
i.e. Amazon as they can always price Kindle Fire
at the same price if not lower.
Why sell at $99?

8. 8
Appendices
Threat Situation Impact on Amazon
Level of
Threat
Threat of
Substitutes
Major brands are coming up with innovative
device solutions for catering consumer needs. Also
there are large number of substitutes already
available in the market.
Thus Kindle Fire is not only facing competition from
the market it compete in (tablet) but also other
substitutes such as-books, magazines, smartphones,
etc. because of its product offerings (movies, music,
e-readers)
High
Threat of New
Entrants
High Demand for Tablets make this market
attractive to potential new entrants
For a new entrant, It would require huge amount of
resources and expertise on many fronts to be able
to compete at amazon’s level
Customers could shift to another alternative easily
due to low exit barriers Moderate
Bargaining Power
of Customers
Customers are more informed about the offerings
of different companies and its harder for
companies to lock in customers
Availability of alternative products that are
relatively cheaper or better makes customer
retention a challenge
The larger number of companies offering similar
product offerings gives customers a wide variety to
choose from , thus the switching costs is low.
High
Competitive
Rivalry
Downward price pressure due to low prices offered
by Competitor
The competitors in the market have forced Amazon
to discount their prices for Kindle (ensuring price
wars)
Competitors are offering their content only through
proprietary platforms, making an effort to lock
customers in their ecosystem.
Moderate
Exhibit 1: Porter’s 5-Force Analysis

9. 9
Appendices
Company Capabilities Valuable Rare Costly to imitate Organized to Exploit
Logistic and Warehousing Yes- Amazon delivers its product in many
countries seamlessly due to its expanded
logistics infrastructure.
Yes- Amazon Prime provides two day
expressing shipping, which is possible due
to its logistic
Yes- Having a widespread logistics
infrastructure requires huge amount of
resources.
Yes- Amazon has been successfully selling
its products since years globally because of
its logistics and warehousing capability.
Brand Image Yes- Amazon over years has been offering
wide range of products to chose from, thus
building its image over time.
No- Since other competitive brands have
also built their customer base.
Yes- Amazon has taken years to build the
image in the mid of the customers hence it
is costly to compete at Amazon's level.
Yes- Amazon has established its image in
the market since years and are preforming
in line with it.
Retailer Network Yes- Amazon has strong partnerships with
retailers, allowing it to deliver wide range
of products.
No- Many competitors are building
relationships with the retailers to enhance
its offerings
Yes- It is costly to compete at Amazon’s
level in terms of retailer networks
Yes- Amazon has been using its strong
retailer database to generate its revenue
stream since years
Data Analytics Yes- Amazon uses its advanced algorithms
to drive popular product
recommendations to enhance it sales.
No- Many companies have large
underlying data infrastructure that they
use to target the customers.
Yes- Data management and building data
require effort, time and resources.
Yes- Amazon’s efficiently manages the
data collected and uses it to its advantage.
Resources- Money/Innovation Yes- Amazon has been established since
years and thus has build cash reserve for it
to innovate and to experiment with new
trends
No- There are competitors that have been
established and have the money to
innovate and experiment too
Yes- It would require huge resources to
compete at Amazon’s level
Yes- Amazon uses its resources to
innovate, and further enhance it
profitability
Exhibit 2: VRIO analysis

10. 10
Amazon 2012 2013 2014
Revenues
Selling Price of Kindle Fire $199.00 $0.00 $0.00
Revenue from Music and Movies $120.00 $132.00 $145.20
Revenue from E-Books $120.00 $132.00 $145.20
Revenue from Incremental Sales $600.00 $630.00 $661.50
Revenue from Advertisements $9.00 $9.00 $9.00
Revenue from Amazon App Store $7.74 $9.29 $11.15
Revenue from Dismissal $6.00 $0 $0
Total Revenue $1,061.74 $912.29 $972.05
Cost of Goods Sold/Variable Costs
COGS/VC of Kindle Fire $200.00 $0.00 $0.00
VC of Music and Movies $84.00 $92.40 $101.64
VC of E-Books $96.00 $105.60 $116.16
COGS/VC of incremental Sales $480.00 $504.00 $529.20
COGS/VC of Advertisements $0.00 $0.00 $0.00
COGS/VC of Amazon App Store $5.42 $6.50 $7.80
COGS/VC of Dismissal $0.00 $0.00 $0.00
Total COGS/VC $865.42 $708.50 $754.80
Contribution Margin
Kindle Fire -$1.00 $0.00 $0.00
Music and Movies $36.00 $39.60 $43.56
E-Books $24.00 $26.40 $29.04
Incremental Sales $120.00 $126.00 $132.30
Advertisements $9.00 $9.00 $9.00
Amazon App Store $2.32 $2.79 $3.34
Dismissal $6.00 $0.00 $0.00
Total Contribution Margin $196.32 $203.79 $217.24
Cumulative Contribution Margin $617.35
Exhibit 3: Amazon Kindle Fire Financials at retail price of $199.00
Appendices