Amazon Kindle Fire Threatens Netflix Too

The world's largest online retailer introduced its 7-inch screened tablet at a special event in New York, surprising industry observers with its low price of $199, less than half the price of the rival iPad.

These are premium products at non-premium prices, Chief Executive Jeff Bezos said. We are going to sell millions of these.

The price alone threatens to change the tablet game. The iPad and mainstream non-Apple competitors all start at $399 to $499.

A survey by Citigroup showed the primary inhibiter to tablet purchases among consumers was the price, and most struggling would-be iPad manufacturers, like Motorola and Research in Motion, cannot afford shrink margins to undercut the iPad, let alone the Kindle Fire.

A look to the fire sale of HP tablets last month, where a lower than normal price set off a frenzy of global demand, also indicates potential success of a lower priced tablet.

If HP TouchPad after-market and eBay sales are any indication, consumers are willing to spend $300 for a good tablet and this may be the sweet spot for non-iPad market entrants, Wedge analyst Brian Blair told clients, anticipating the Kindle Fire.

But Amazon -- with expected revenue of $10 billion in the current quarter -- can undercut Apple, even if each device is sold at a loss to lure customers into its lucrative Prime subscription service, Fred Moran of The Benchmark company said.

One of the most interesting and potentially impactful announcements was Kindle Fire customers receive a 30-day free trial of Amazon Prime, he writes.

A more looming threat could be to Netflix, Moran said, explaining that users with a Kindle Fire and a Prime account may have little use for Netflix.

Alongside video, having its own tablet is important for Amazon to push other digital goods and services. In that regard, the tablet will also be one of the first which could potential go toe-to-toe with Apple in terms of content.

Apple has built a similar ecosystem around its mobile devices with the iTunes digital media store, and the forthcoming iCloud hosted service. The selection and ease of use has proved to be a nearly insurmountable barrier for past rivals, which only just offer hardware.

Amazon can offer this, however, with is its growing catalogue of eBooks and other digital media, including music, video and games.

Given Amazon's arsenal of media content (music, streaming TV and movies), digital books, app store and distribution strength that the company's tablet offering has an opportunity to offer something competitive to the iPad, Blair said.

But threats aside, not all see it as a true competitor to the iPad.

Gene Munster with Piper Jaffray told clients that the Fire is more competitive than he anticipated, especially in versus the iPad, but the lack of a camera and 3G make it

not a true iPad competitor.

He maintained his estimate on Apple shipping 50 million iPads next year, despite the threat.

Amazon shares are up $10.02, or almost 5 percent, at $234.25, while Apple shares are up $1.94, or half a percent, at $401.20.