Amazon, a company on fire. As a company Amazon is attempting to ride the wave of change that is the digital media revolution. Having already established an empire based on what we read they are expanding to include what we watch and what we watch it on.

Central to this evolution is Amazon’s latest gadgets, the devices that make it easy to access Amazon’s content. This has until now been the territory of the Kindle and Fire readers and tablet. Now Lab 126, Amazon’s super secret R&D lab is said to be preparing a new generation of Fire tablets and controversially, a Smartphone.

Amazon have a long road ahead of them in 2012, competing against the biggest names on the internet, keeping share holders happy and entering the tablet / smartphone market is enough to keep a clone army of Martha Stewarts busy.

Earnings Report and Strategy…

Even Amazon founder and CEO Jeff Bezos has to report to his boss, in this case his share-holders, Amazon is big business. For Q2 Amazon reported sales of $12.8 billion, up 29 percent on 2011, and net income of $7 million, down 96 percent on the same time last year. Reportedly profits were hit by $65m loss after the acquisition of Kiva Systems and currency movements also hit the bottom line hard, to the tune of $272m.

More interesting than the raw numbers discussed in the earnings report were the discussion of the planned investment in cloud and video streaming technology, along with 16 new warehouses. Spending described by the report as being required to take advantage of future opportunities. All of which may push them to an operating loss of $50 million by the third quarter. Obviously Bezos has big plans for his media empire.

Will Amazon hang on to loss making strategies of the past, which isn’t limited to operating loses. Bezos demonstrated he is willing to take a loss on each unit sold in order to shift his Fire tablets at a more desirable price point, especially when compared to the competition.

Upon release in September 2011 the first generation Kindle Fire sold for the red hot price of $199. Research firm HIS iSuppli estimated at the time a production cost per unit of $201.70, a cost that led to a $10 loss on every tablet sold during the period. The production cost has now dropped to $138.80, which adds weight to the rumor that Amazon will drop the price of the base Fire 2 tablet to $149 USD.

The ACE up Amazon’s sleeve, Lab 126…

Lab 126, Amazon’s super secret skunk works, nestled in silicon valley just a few miles down the road from Apple’s corporate headquarters in Cupertino, Lab 126 is essential to Amazon’s evolution and success.

Amazon even has it’s own Q. It seems the master gadget engineer for her majesty’s service has competition. Gregg Zehr, a former Palm VP of hardware engineering and the head of Lab 126 is the new Q, or Z as we call him. This is James Bond’s new go to man for lifesaving and deadly gadgets. In his spare time Z (Zehr) leads Lab 126, working on the next generation software and hardware for Amazon.

Lab 126 has seen rapid growth in the last 12 months, while there were 500 employee’s last September, when the Kindle Fire was launched, there are now over 800 employees, according to LinkedIn. What are these people working on?

Amazon built its original digital empire through its e-book media and readers, the tablet and smartphone introductions are more about expanding the content types delivered rather than the hardware itself. Their Prime service already delivers high definition movies and TV episodes to the existing Amazon clients; Fire, PC and iOS or Android apps. Increasing the number of devices out in the real world that are directly connected to Amazon’s store is essential, Lab 126 is creating these devices today, devices Amazon customers will be using tomorrow.

Upgrading Fire…

The China Times recently reported that Amazon have already started production of the new Kindle Fire, ready for release in the next two months, and more important ready for the build up to the Christmas shopping season.

CNET speculates that 4 new Fire tablets will join the Amazon family. All based around the Android operating system (JellyBean) with Amazon’s interface sitting over the top. The existing 7 inch tablet will be split into 3 models, the new base model will have 1024×600 resolution screen and no camera but a lower $149 price tag.

The second model will up the displays resolution to 1280×800 and include the long missing camera for $199. The final 7 inch tablet looks to be a specific model for mobile providers, with the 1280×800 display, camera and 4G connectivity. This model may be provider only and could be a low upfront way of getting a Kindle Fire.

The forth tablet will be a high end Fire 2 that will obviously be priced well above the $199 levels of the current generation. With a full high definition 8.9 inch IPS display capable of 1920×1080 resolution the picture quality will rival the iPad and Transformer Infinity. Expect a quad core processor, 1GB of RAM and up to 64GB of Flash storage. The price is still anyone’s guess, Highpants has money on the $399 USD price tag, with no loss making tablets in the new generation.

The 7 inch tablets will continue to use dual core Texas Instrument chips, although they should be the faster 1.2Ghz chips. Bluetooth connectivity and GPS are still a mystery, as is the reason for the missing features. Wi-Fi, USB and microUSB will continue on the base Fire 2 models, the 8.9 should see the introduction of a microHDMI output, to allow your tablet to easily become a media centre PC. The new models are also rumored to include a slightly different button layout, with the new inclusion of volume and camera controls.

The current Kindle Fire features a 7 inch IPS LCD (1024×600), internally a dual core 1000Mhz TI OMAP4 processor along with 512MB of RAM keep the system ticking along. 8GB of Flash is provided for storage, the new models should all surpass this specification.

The Fire tablets were sharp looking, well designed tablets from the outset. Fire generation 2 will slim down slightly and drop a little weight, only adding to their sleek good looks. Dimensions of the new 8.9 inch tablet are still a mystery but expect super thin bezels and even slimmer designs.

Here at Highpants we believe the two base model Kindle Fire 2’s will be released July 31, the replacement for the current Fire will drop to $149, at $199 the second model will offer better screen resolution and a camera. The biggest announcements however will be held over till September when the smartphone and high-end tablet will be released during Amazon’s big September event.

CNET suggests 4 models are planned:

• 7-inch Kindle Fire 2: 1024×600 display, no camera; August production
• 7-inch Kindle Fire 2: 1280×800 display with camera; August production
• 7-inch Kindle Fire 2: 1280×800 display with camera and 4G; September production
• 8.9-inch Kindle Fire 2: 1920×1200 display; Q4 production.

Retailer Staples has added fuel to the rumor fires, letting slip that 5 or 6 new SKU’s (product numbers) have been created by Amazon for products coming up in the next 12 months. Enough for a smartphone and some new tablets we suggest.

The Amazon Smartphone

The possibility of an Amazon smartphone is pure speculation at the moment, Amazon has not confirmed, nor even commented on the possibility. There are however a number of rumors from different sources that make the speculation more than a little interesting.

Reuters has recently reported a series of job postings indicating that Amazon is working on a smartphone. Lab 126 recently advertised positions for a Hardware Validation Engineer, whose responsibilities include working with carriers to ensure compatibility of devices, and a Field Quality Engineer, that would be responsible with the field testing of smartphones.

While other reports out of China have indicated that Foxconn and Amazon have been working together for a number of months, designing a new Android smartphone for production in Foxconn’s Chinese factories.

Details of the smartphone have been scarce, it is likely to be an Android based device with Amazon interface over the top with very similar specification to the 4G tablet but in a smaller 5 inch form factor. The same 1024 x 600 resolution as the base tablet may be possible for the smartphone.

The mobile phone market may initially seem like a risky move for Amazon, it is after all a crowded market with highly evolved hardware to compete against. However they have nothing to loose in the move, as long as they don’t over commit on production even limited success would be a positive.

How Do They Stack Up?

At $149 USD Amazon wins on price, offering a good specification at an excellent price. A decent discount when compared to the Google and Samsung 7 inch tablets which start at $199. Hardware wise the Google Nexus 7 wins hands down on included features. The quad core Tegra 3, JellyBean, Bluetooth, NFC and camera make the Nexus a great all rounder.

Amazon wins on the integration of their content services, something existing Amazon customers will find very attractive. Becoming a Prime member makes far more sense once you have a Kindle Fire. As a Prime member ($79 USD a year) you have access to a huge collection of video and audio as well as the free Kindle lending library.

The smartphone market is even more competitive, the Samsung Galaxy SIII is taking over the world , mean-while Apple is on the verge of releasing their answer to the Galaxy, the infamous iPhone 5. In the midst of all of this Amazon hopes to capture some attention, they will want to be sure to release something pretty damn good, even just to be noticed.

Games, Not Just Another Kindle Content.

Horror stories of applications taking a month or more to be certified by the AppStore circulated soon after the Fire’s release. Thankfully the App store is now running smoothly. After hiring constantly throughout the year Amazon has assembled a pro-active team that works with developers to get app’s onto the store.

Amazon obviously sees games as another type of content for it to deliver, interactive content as they describe it. Since this particular type of content (games) is estimated to be a $50 billion dollar a year market, Amazon see’s the potential.

Extending the Kindle Fire’s gaming abilities Amazon has recently introduced GameCircle to their Fire mobile platform. GameCircle integrates gaming statistics, leaderboards and achievements, into a single easily accessible widget. GameCircle also introduces game sync’ing, allowing the player to save their game (using their Amazon cloud account) then pick-up playing the game on a different device.

Content
Content is everything in this war and Amazon may have twigged. Amazon has just inked a video-on-demand deal with Warner for the likes of The West Wing, Fringe and other hit shows to appear for an exclusive period on the Prime platform. This is on top of the 20 million movies, TV shows, songs, magazines and books already in the Amazon catelogue.

Adding to Amazon’s media empire Amazon UK have a brand new digital media innovation hub. With teams of software developers, user interface experts and graphic designers working away to create digital interactive content for consoles, smartphones, PC and TV Amazon seems to be tackling content from every angle.

Conclusion
Amazon are a company in transition, evolving to become a well rounded media empire, with millions of potential tablet and smartphone users ready to consume content.

The tablet market alone has become far more crowded over the last six months, Amazon will need to compete with the latest tablets from Google, Samsung, Acer, Toshiba, IBM as well as every second Chinese production line.

To succeed Amazon needs a great product at an even better price, a fairly powerful 7 inch tablet for $149 USD and a top end 8.9 inch tablet for $399 USD certainly will get attention, Amazon just hopes that the Amazon experience closes the deal for them. They have every chance at succeeding as well, the formula just adds up.