RIM Blindsided by Kindle Fire Pricing
If you recently purchased one of Research In Motion's BlackBerry PlayBooks at a significant discount, you may have Amazon to thank for it. — The move to slash $200 and then $300 from the device's retail price was evidently made to battle the Fire's loss-leading $199 price.
Context & Ripple Effects
RIM entered the tablet market a year ago promising to undercut Apple, pricing the PlayBook below $500 to take on the iPad — but it never found demand at those levels, and by September 2011 retail partners were already cutting, with Best Buy slashing up to $150 off. The real blow landed when Amazon unveiled the $199 Kindle Fire in late September, a device iSuppli noted was sold near or below cost to drive merchandise sales rather than hardware profit.
First-order effects
- RIM has now cut $200 and then a further $300 from the PlayBook's retail price, pushing the device deep into fire-sale territory and wiping out any remaining margin for itself and its retail channel.
- Buyers who paid closer to the original sub-$500 price weeks earlier are left holding a tablet whose street value has collapsed within a single quarter.
Second-order effects
- Every other Android tablet maker now has to price against Amazon's $199 anchor rather than against the iPad, forcing them into the same thin-margin territory Reuters flagged when the Fire's supply and margin questions first surfaced.
- Amazon's model — hardware as a storefront for its Appstore and merchandise sales, which ChangeWave confirmed is generating the first meaningful non-iPad buyer demand — puts pressure on rivals who lack a commerce engine to subsidize the loss.
Third-order effects
- The tablet market is structurally splitting into two viable positions: commerce-subsidized cheap devices and the premium iPad tier, leaving hardware-only mid-market vendors like RIM squeezed out of a defensible middle.
- If the pattern holds, tablet competition shifts from spec sheets to ecosystem economics — who can afford to lose money on silicon because they profit on what runs through it.
The trend: Tablets are bifurcating into loss-leader devices subsidized by content and commerce ecosystems versus premium hardware, and vendors without an ecosystem are being priced out of the middle.