How Apple Can Beat the Kindle Fire

Amazon's Kindle Fire tablet is a far better device than most reviewers would have you believe. And while my own review of this amazing media tablet is still a ways away, I did want to offer up one thought about this emerging two-way race beforehand. And that's how Apple could beat Amazon at its own game.

It all boils down to three simple points: Size, price, and choice.

Size. The first step would be for Apple to release a smaller iPad with a 7-inch screen but the same resolution as the first two iPad revisions. This product would be a bit smaller than the Fire, since it utilizes a 4:3 screen instead of a widescreen display, and I think we all know Apple could deliver a thinner and lighter device that gets better battery life.

Two points about this size. First, it's ideal: I've been asking for an iPad that was the size and shape of last year's Kindle (what's now called the Kindle Keyboard) since the original iPad was revealed. And second, it's impossible to look at an iPad and an iPod touch next to each other and not think there's plenty of room for a device that fits right in the middle.

Price. Amazon, of course, is seen as the low-cost offering, and it is: The Kindle Fire costs just $200, about one-third the cost of a mid-level iPad. But there's a weakness in that low price, too. And that's that Amazon has nowhere to go. You can't lower the price of the Fire much lower than $200 anytime soon. Perhaps $150 eventually, but even at that level the company would be taking a bath on each unit sold.

So what about the iPad? Obviously, Apple's going to have to lower prices. In fact, I'm amazed it hasn't happened yet. But let's think about a 7-inch device that sits comfortably in the middle ground between today's iPod touch and the iPad. Generally speaking, smaller is more expensive. But if you think of this device as a bigger iPod touch, there's no reason it couldn't cost the same as today's iPod touch models, plus a bit extra for the glass and a few other components. And what's an entry level iPod touch, with 8 GB of storage, cost? That's right. $200. Just like the Kindle Fire.

And let's be honest here, folks would pay a bit more for an Apple product anyway. So let's say $250 to $300 including the Apple tax. With a low-end 10-inch iPad costing a more reasonable $400, that price range starts to make plenty of sense.

Choice. There is a key difference between the Apple and Amazon business models here and I have to say, Apple is the company that emerges in the better position. Both companies now sell devices and have a vast supporting ecosystem of content and apps. But Apple's primary business is the devices, and it uses that ecosystem to the support hardware sales. Amazon's business model is the reverse: It sells content, and it uses the devices as a conduit for selling that content.

So why is this a problem for Amazon? Well, the Kindle Fire is currently a gateway to Amazon services only. Yes, you can access some third party services like Netflix. But only on the iPad/iOS do you get the full range of choice. So someone who buys an iPad could read Apple's iBooks eBooks. Or Amazon's, using the Kindle app. Or Barnes & Noble's, using that app. On the Kindle Fire, you only gain access to Amazon. There are exceptions on either side, but ultimate, I'd rather have a 7-inch iPad than a 7-inch Kindle Fire. And I bet many other people would too.

Choice takes other forms, and it's worth noting that this imaginary Apple device would also come in two colors, with Wi-Fi and 3G options on a variety of carriers, and would come with varying amounts of storage at different price points. Remember: Apple is about the devices. But with the Fire, you get one unit, and I hope 8 GB of storage (6.5 GB usage) is enough for you. It's not for me.

And that is how Apple can and should take on the Kindle Fire: Simply build a 7-inch iPad, price it aggressively, and provide the standard range of Apple choices for the device. Game over.