J.P. Morgan analyst Mark Moskowitz had a sit-down with Apple CEO Tim Cook and CFO Peter Oppenheimer, from whom he gathered that they were not at all concerned by Amazon's Kindle Fire tablet.
If they had said that before the Kindle Fire was launched Nov. 15, I'd call them arrogant. Having played with the custom Android slate with a 7-inch display for over two weeks, I can see their logic, and that of Moskowitz, who wrote Dec. 2:
"We believe that Apple is not too concerned about the low-priced entrants. If anything, we think that Apple views the Kindle Fire as a device that stands to bring incremental consumers to the tablet market, and here, these consumers could gravitate to more feature-rich experiences. In other words, we think that Apple is not seeing much pressure from lower-priced tablets, yet."
People who buy a Fire may use it for a while, and then decide they like the tablet concept enough to upgrade to a superior, richer product, which would drive sales to the iPad and possibly Honeycomb tablets.
In other words, the Fire is likely an on-ramp to the iPad, which is the be-all, end-all of feature-rich tablets. It's got the features, services and content that have pushed consumers to purchase more than 32 million of them in 18 months.
What the Fire is, is a great shopping booster for Amazon's content and services. While moving between content may be challenging, it's quite rewarding when you get there.
Moskowitz said he expects Apple to sell 13 million iPads for its December quarter, which would put it close to 50 million units in less than two years. Apple single-handedly created the tablet market, and it's ruling it.
So what of the Fire? Moskowitz remains unimpressed:
"We think that for any vendor to wrestle momentum longer term from Apple, a fully loaded offering is a must, and here, the current revision of the Kindle Fire falls short. We think that, over time, consumers may come away disappointed with the Kindle Fire's lack of functionality and smaller screen size. In our view, the Kindle Fire is the current netbook of the media tablet market. The bigger question is whether the Fire evolves into a bona fide tablet in its next-generation release."
Of course, with the Fire selling at a low, low price of $199, Amazon should sell a lot of them, assuming people don't send them back after comparing them to a more expensive Honeycomb tablet or the iPad.
The real competition should happen next year when Apple launches iPad 3 and Amazon puts out a Fire tablet with a larger screen, and it had better hope for the sake of competing with Apple in the future, a better user experience.
Here's another angle: The damage may be done for Amazon. There's a saying that you only get one chance to make a first impression. If people are unimpressed by the Fire, enough to move to the iPad, it may not matter what Amazon pumps out in the future.
The Fire brand could be toast, and we don't know it yet. So much for the erstwhile purveyor of an Android tablet to challenge the iPad.