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RIM PlayBook feels the heat from Kindle Fire

Research In Motion?s recent decision to write off $485 million worth of PlayBook tablet inventory points to the influence that Amazon?s Kindle Fire is having on the tablet market.

RIM said last week that it will post the $485 million charge in the third quarter after dropping the price for the BlackBerry PlayBook tablet to $199 because of slow sales. RIM seemed to point to the Kindle Fire?s effect on the tablet market when it said that recent shifts in the competitive dynamics of the tablet market help explain the need for increased promotional activity.

?This is the reality that you have when you have a product come in and be disruptive like the Kindle Fire,? said Rhoda Alexander, senior manager of tablet and monitor research at IHS iSuppli, Englewood, CO.

?The PlayBook was already having trouble getting traction in the market,? she said. ?Then you had the disruption with the Kindle Fire, which set a new bar in pricing on 7-inch tablets.

?This put RIM at a disadvantage. They made a very smart move and rather than continue at the same price or discount the product slightly, they are cutting their loses and unloading the product right now so they can start fresh with where they are going to go in the tablet market.?

Deep impact
Since the launch of the new promotions across consumer and enterprise channels in the United States and Canada late in the third quarter, RIM said it has seen a significant increase in demand for the PlayBook.

The company said it sold in approximately 150,000 BlackBerry PlayBook tablets in the third quarter and sell-through was higher than this amount.

RIM will continue with the promotional pricing strategy to help drive adoption of its QNX mobile operating system.

It is not just RIM that is feeling the heat from the new Kindle Fire.

The Kindle Fire tablet was introduced by Amazon at the end of September with a price tag of $199, which undercut the cost of many other 7-inch tablets in the market.

Prices on these devices are coming down as a result.

?You can look at the pricing over Black Friday weekend and, almost across the board, these products in that same size range are coming down significantly in price,? Ms. Alexander said. ?The Kindle Fire has had a significant impact across the whole Android marketplace, with most of that impact in the U.S. market.

While RIM says it is committed to the tablet market, it is not clear yet if the company?s next moves will include a premium priced tablet or if it will continue to compete on price.

?RIM had some challenges in terms of how the tablet was configured, making it work seamlessly and appealing to their customer,? Ms. Alexander said. ?The company has to have a product that addresses those bugs going forward or come out with a product that competes on price.?

Market splits
One of the reasons why RIM has committed to selling the PlayBook at a lower price is to drive sell-through on the devices and help accelerate adoption of its QNX-based platform by consumers and enterprises. This, in turn, will help drive the development of a vibrant ecosystem.

Customers who purchase a new PlayBook at the current promotional pricing will be able to upgrade to the enhanced PlayBook OS 2.0 software at no additional charge when it becomes available in February 2012.

The challenges that the PlayBook and other tablets face getting consumers to buy their products points to the growing bifurcation of the tablet space.

?We are seeing a split between tablets that are really just pure media players, used for consuming content, either video or written content, and products at the higher end that are moving to accomplish more complicated tasks, offer more detailed apps and moving into the creation space more,? Ms. Alexander said.

?Between what iPad did originally and what Amazon has done, they are really playing to different ends of the pool,? she said. ?We will continue to see this kind of separation moving forward.?

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York