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September 29, 2011

Amazon lights a Fire on Q4/2012, Quidsi gossip and Fulfillment center buzz

There's a ton of Amazon news out today that we wanted to fill you in on.  Of course there's the Fire, but there's some interesting news on Quidsi and Amazon's Fulfillment centers also.

Amazon Lights a Fire on Q4

Unless you are living under a rock, you probably saw that Amazon formally announced the Kindle Fire. It turns out that much of the speculation (we covered it  here) was true.  There were a couple of big surprises:

  • Pricepoint - $299 and $250 were the price points rumored and Amazon trumped that with the $199 price point. Amazon also slid the lowest kindle down to a meager $79
  • Prime - It's not included, but Fire users get 30 days to get addicted.  I think the take-up rate will be huge on this as you essentially get the value of a Netflix streaming membership on the device (instant video) plus free 2 day shipping for only $80. 
  • Silk - When you think of the 'standard' apps that sit on a tablet, you have email, browser, app store, maps, ereader, movie player, photo album.  Amazon has now stripped the Google/Android versions of those off the device and replaced them all except email+photo album.  By providing a new browser powered by EC2, they are also taking an interesting strategic step.  Could this grow off the tablet and become a contender for Chrome/IE/FF down the road?  Personally, I'd love to give it a try and see if the speed really is that amazing.
  • Bezos - It was great to see Bezos out as the spokesman.  He does a great job as the chief evangelist for the company and I think they should leverage him more.  For a long time he has been out of the spotlight.  I really liked the messaging around: "Premium products at non-premium prices".  This clearly carves out a different niche than what Apple is going after

The Fire Prime trial solves two problems that we identified with the 'bundled Prime' rumor:

  • Existing Prime users get a benefit here - we don't have to buy Prime again to enjoy the benefits on the Fire and the device truly is $199 for us.
  • It keeps the device clost low, but will get that additional $80 out of most of the non-prime buyers.  I don't think Wall St. sees this yet as they are freaking out about the possible margin impact here.   The device is effectively $280 for these people.

Sticking by my estimates, but now they feel a little light

A couple of people on Wall St. thought I was pretty much insane, but I'll stick by my predictions on Fire sales:

  • Q4 2011- 5m units
  • 2012 - 20m units
  • Fire's surge of Prime users will give a 20% lift to Amazon ramping now and going through mid-2012.  

If anything I'm more bullish on that as the device really seems to be a solid entrant and generating a ton of buzz.  I actually don't think it has to cannibalize the iPad market, it will just crush the Nook into oblivion and all the other lower-end tablets firmly establishing itself as the B/value player in a huge new market.  Apple isn't a 'loser' here, the most risk is for Google (more product searches not going to google), Netflix, B+N, and Walmart.com/eBay as Amazon locks in the consumer into their marketplace/e-commerce ecosystem.

A lot of people don't realize that Amazon is actually quite transparent in this regard, here's a screen shot of their top selling items, look at what shot to the top (within 2hrs of the announcement)-> (click to enlarge) this is ordered from best seller on the site down to lowest.

Kindle_fire
Yep, Fire is number one with a bullet, and then you see all the new touch and low price models rounding out the top. In short, Amazon is going to sell a TON of these devices starting now and going through Q4.  Think of all those people coming to the site, pre-ordering their Kindle, and picking up some other general merchandise while they are there, or going ahead and signing up for Prime, etc.

Best Fire demo

There was  a ton of coverage yesterday on the Fire, the best demo I've seen is embedded here, in this 5min demo, you really get a feel for what this device is going to be like.  In short - very snappy and full of great content.

I like when he gets all three rows of the home page scrolling in real time.  SWEET!!

Quidsi update

Matt Nemer, Wall St. Analyst with Wells Fargo, had a meeting with Amazon management and scooped a couple of interesting tidbits.  Quidsi is the company behind Diapers.com and Soap.com that Amazon acquired in November of 2010.  Earlier this year Quidsi expanded into Pets with Wag.com and Toys with YoYo.com.

Matt discovered:

  • Quidsi is launching three more categories ASAP
  • Home furnishings (to compete with CSN/Wayfair most likely)
  • Green products
  • Sporting goods (to take on the GSI Sporting Goods trifecta)
  • They are being super aggressive on Wag.com and sales pace there is already exceeding soap.com's first two months

Fulfillment Center Tour notes

Both Matt and Gene Munster @ PJC were given tours by Amazon of their Phoenix Fulfillment Center.  Some interesting tidbits from their write ups are here:

  • Amazon believes their FCs are best of class on many KPIs: error rates, free replacement and view this as a e-commerce strategic advantage
  • Orders leave in < 2hrs and their network can reach the entire continental US using ground shipping in 2 days - a huge logistics achievement that gives Amazon a strategic advantage.
  • They are on plan to have > 70 FCs by EOY
  • Amazon owned and FBA inventory are co-mingled
  • Amazon leverages the Japanese Kaizen system to implement improvements and drives a relentless focus on waste reduction
  • Example: when an error happens, designated error handlers take over so the normal workflow is not disrupted.

Bottom line: Amazon sees fulfillment as a key pillar of their customer experience - bigger shopping windows, faster deliveries, lower error rates all improve the buying experience, increase loyalty and drive deeper competitive moats.

SeekingAlpha Disclosure - I am long Amazon and Google. eBay is an investor in ChannelAdvisor where I am CEO, I have pre-ordered a Kindle Fire.

 

 

 

 

 

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