Amazon Kindle Fire causing chaos in Android tablet market, says report

Amazon's Kindle Fire has already leapfrogged the Samsung Galaxy Tab and will finish the fourth quarter as the number-two tablet worldwide, behind the Apple iPad, according to new projections from IHS iSuppli.

More than a strong new competitor, however, the Kindle Fire is able to compete in ways that tablets from traditional manufacturers can't, which has "created chaos in the Android tablet market," IHS senior manager Rhoda Alexander explained in a Dec. 2 statement.

Amazon is selling the Kindle Fire for $199 — though it costs the company $201.70 to build.

"Most other Android tablet makers must earn a profit based on hardware sales alone," said Alexander. "In contrast, Amazon plans to use the Kindle Fire to drive sales of physical goods that comprise the majority of the company's business. As long as this strategy is successful, the company can afford to take a loss on the hardware."

She pointed to Amazon's offer of a free one-month membership to Amazon Prime, which grants users free two-day shipping. There's also a new free Amazon Santa tablet app, which lets users create Christmas wish lists of Amazon's goods. And then of course there's Amazon's considerable marketing muscle — which on Black Friday made the new Kindle family Amazon's best-selling products, just as last Christmas the third-generation Kindle was its best-selling product, beating even the then-latest Harry Potter book.

Two years after the iPad's debut, said Alexander, a competitor has arrived with "enough of Apple's secret sauce to succeed."

IHS expects the Apple to finish Q4 with sales of 18.6 million iPads and a 65.6% global tablet market share, followed by Amazon with sales of 3.9 million Kindle Fire tablets for a 13.8% share. Samsung, in third place, is expected to sell 1.37 million Galaxy Tabs for a 4.8% share, followed closely by Barnes & Noble's 4.7% share on 1.32 million Nook units and less closely by HTC, with sales of 355,000 Flyer tablets, for a 1.3% share.

While early iPad competitors largely mimicked Apple's efforts, the Fire's "secret sauce" boasts ingredients exclusive to Amazon. Still, IHS expects the entire tablet market to grow. It has raised its 2011 forecast from August's 60 million to now 64.7 million, and 2015 expectations from 275.3 million to 287.2 million — with the differences all due to the Kindle Fire.

"Production plans make it clear," added Alexander, "that Amazon is betting big on the product."