Amazon.com Inc. (AMZN - Analyst Report) announced that it will remove the built-in advertisements from its Kindle Fire tablets if the users pay an extra fee of $15.
This advantage is not available to existing users, but only to those going for the new Kindle Fire models. As the tablet market has gotten increasingly crowded, Amazon is looking for ways to keep its relatively low-end devices attractive.
For Amazon, Kindle sales are highly important, not so much because of the hardware value, but more because of its platform effect that facilitates the sales of a host of digital goods from Amazon.com.
However, the strategy might backfire as some users may not want to pay any additional fees for the tablets. Incidentally, advertisements have helped Amazon to offer the Kindles at a lower cost than tablets such as Google’s Nexus 7, Microsoft’s (MSFT - Analyst Report) Surface and Apple’s (AAPL - Analyst Report) iPad. Amazon is constantly evolving its Kindle Fire tablet.
Recently it launched high definition (HD) versions of Kindle at a cheaper rate and followed it up with the option of removing advertisements for a fee. Since these strategies are coming ahead of the holiday season, they may be expected to help Kindle sales this year.
However, Apple’s dominant position is unlikely to be affected just yet. The user experience and ingenuity of iPads is still unmatched by other tablets in the market. Further, the smaller iPads, if introduced, may give the 7-inch tablets a run for their money.
According to research conducted by IDC, Apple shipped 17 million iPads in the second quarter of fiscal 2012, capturing 68.2% market share, followed by Samsung with 9.6% and Amazon with 5.0%. Amazon’s second quarter results were more or less within expectations.
Reported revenue of $12.83 billion was down 2.7% sequentially and up 29.5% from the year-ago quarter. This was better than the guidance range of $11.9-13.3 billion (down 4.4% sequentially, or up 27.1% year over year at the mid-point) and in-line with consensus expectations. Excluding an unfavorable currency impact, year-over-year revenue growth was 32%.
Currently, Amazon has a Zacks #3 Rank, which implies a Hold rating in the near term.