One of the things that has made Apple the most valuable company on the market in recent years is its ability to continually create new markets with groundbreaking, innovative products such as the iPad and iPhone. This has enabled Apple to charge premium prices for its hardware and rake in handsome revenues and profits, while the money it makes from software is a comparative sideshow.
This hardware earnings dependency is Apple's greatest vulnerability, as Microsoft so aptly demonstrated in the 1990s with Windows, and Google is about to demonstrate with Android, using the new Amazon Kindle Fire.
At the launch of the iPhone, Steve Jobs stated in effect that hardware and software are indivisible and that serious technology companies should make both. After watching the phenomenal resurgence of Apple of Jobs' return, it's hard to argue with that philosophy. The only issue is from where the profits are derived and this is why Apple should be worried about the Kindle Fire.
Until now, Apple has been able to charge upwards of $500 for its iPad 2 models. Amazon is unleashing the Kindle Fire for US$199.
Despite its protestations to the contrary, Amazon will not make money off its new Kindle hardware. In fact, it will almost certainly make a loss.
But Amazon is not in the hardware business and never has been. The Kindle was originally developed as a means to sell e-books through its online store. The Kindle reader app is a popular free app for the iPad.
The Kindle Fire will more than make up for its loss leader shortfall with the additional amount of online products it shifts - games, e-books, apps, music, movies, shoes, clothes and whatever. And consumers, when faced with a buying choice between similar tablet devices, one with optimised access to the most popular online store in the world and which costs just 40% of the price of the other - well the choice is obvious.
Apple of course has iTunes and its very successful App Store but when it comes to online retailing, for range of products, global reach, a seamless buying experience, and retail store revenues, Amazon is the 800 pound gorilla and Apple the minnow.
It is unthinkable for Apple to make a loss on the iPad family of products so it will never be able to come close to matching Kindle Fire on price.
Apple will of course retain a large percentage of its loyal fans. But unless it can come up with a way to convince other consumers that the iPad products are worth paying double for or introduce a new bundling strategy, then it will lose share to Amazon, which also has a massive loyal customer base.
As for Samsung and all the other Android tablet makers, they better think seriously about how to make attractive usable devices that can sell at a profit for considerably less than US$199 or get out of the business.
The only issue for Amazon is global distribution of the Kindle Fire. The sooner the world outside the US gets more affordable tablet computers the better. So Amazon, bring it on!