Best aspect of Kindle Fire? 7-inch tablet price pressure

After months of rumors, Amazon (s amzn) outed its tablet entry this week: the Kindle Fire is available to pre-order now, with delivery expected on Nov. 15. The slate looks simple yet powerful, and is backed by Amazon’s large media content library for books, movies, music, television shows and magazines. Plus it runs Android(s goog) applications specifically curated for its AppStore. The most impressive feature, however, may be the price.

For $199, customers get a light, thin 7-inch tablet that runs for 8 hours on a charge and is easy to tote. There’s no mobile broadband connection, but the device does have a Wi-Fi radio. Internal storage is a relatively meager 8 GB, which is supplemented by unlimited Amazon cloud storage for Amazon content.

The Fire has no camera, which also helps keep the costs down; IHS estimates each Kindle Fire costs $191.65 for materials, plus another $17.98 for manufacturing. Effectively, Amazon is selling each Kindle Fire at a small loss, expecting to turn profits on the sale of digital content and physical products bought from Amazon via the tablet.

Effectively, Amazon has created a 7-inch tablet that offers a large percentage of the same functionality found in competing tablets, but has done so at a much lower price. I expect the $199 price tag, in combination with Amazon’s content ecosystem, to generate a large amount of tablet sales for the company; especially when compared to much more expensive alternatives. But those may not be expensive for long.

HTC makes a solid 7-inch slate in the Flyer; it runs the full version of Android 2.3, made easier to use by the addition of HTC Sense, a custom software layer. But the Wi-Fi version up to now has been priced at $499 since it launched. That’s the same price as a 9.7-inch Apple(s aapl) iPad which boasts a larger content ecosystem. Best Buy (s bby) is permanently cutting the HTC Flyer cost to $299 starting Oct. 1, making it more price competitive.

Research In Motion’s(s rimm) BlackBerry PlayBook is another 7-inch Wi-Fi device; in fact, the Fire looks much like the PlayBook both inside and out. But the PlayBook, too, launched with a $499 price tag and is currently available for the same $299 as the HTC Flyer due to a recent price drop. Price isn’t the only reason the PlayBook isn’t selling well; the device is missing key functionality such as a native email client for those without BlackBerry handsets. Even if it was feature complete, the market won’t support a $499 tablet with a 7-inch tablet.

The PlayBook price cut took place prior to the Kindle Fire launch, while the Flyer price drop was just announced today and is likely in response to Amazon’s $199 tablet, at least in part. Cutting the cost can also help move inventory that’s piling up. We saw just that scenario with a $99 fire sale of HP TouchPads last month, for example. And that’s telling: even with missing features or fewer applications available, consumers are willing to pay $99 for decent tablet hardware from HP(s hpq) or others.

At $199, Amazon just set the bar for 7-inch tablet makers. It’s unlikely that competitors will be able to match that price, because they simply can’t make up any losses on content. Amazon has a key advantage there. But I do expect that future 7-inch tablets to be priced in the $250 to $300 price range, even if that means eliminating some features, like a front-facing video camera, for example. The pressure is on: small tablets going forward will need to have smaller price tags too, thanks to Amazon.