How many Kindle Fire models does Amazon need?

Amazon’s Kindle Fire is a shining example of a successful Android tablet, accounting for an estimated 14 percent of all slates sold in the last quarter of 2011. The $ 199 price tag and supporting ecosystem have much to do with that success, which is why I’m surprised to hear China Economic News Service reporting three more Kindle Fire models are coming this year:

“This year, the company plans to roll out three new models, low-end 7” model (resolution of 1024×600), medium- to high-end 7” model (1280×800), and high-end 8.9” (1920×1200).”

Obviously anything is possible, as Amazon isn’t a company that sits still for long. There’s also some precedent here with the original Amazon Kindle e-book reader. The company debuted a single model in 2007, refined it in 2008 and now has a family of e-ink displays ranging in price from $ 79 to $ 139. Some offer touch screen functionality via infrared sensors, while others use hardware buttons for typing and page turns.

But tablets are a different beast than e-ink products. Amazon can’t add a touch screen to them, because they already have a touch screen. And clearly, it can’t remove that feature because it’s the primary source of input on the device. So according to CENS, the variation will be in size and display quality.

That sounds reasonable, especially if Amazon plans to offer its video content in different resolutions. Today on the 1024 x 600 screen of a Kindle Fire, you can’t view a movie in 720p resolution. If the source video is high definition, it’s scaled down to fit the lower resolution display. So higher resolution screens could be in the works. Maybe we’ll see a 7-inch Kindle Fire HD, for example.

That’s going to add some cost and I’d be surprised if Amazon looks to sell a 7-inch tablet above that $ 199 price tag. Perhaps it can negotiate a good deal on 1280 x 800 displays, fit them in a $ 199 “Kindle Fire HD” and then lower the current Kindle Fire to $ 169 or so. When looking at an 8.9-inch offering that CENS suggests is coming, the argument that Amazon needs such a model becomes less compelling.

At 8.9-inches, and with a high resolution display, this likely puts the product in the $ 249 to $ 299 range. Not a bad deal, but there’s more competition at or above $ 300, such as a 9.7-inch iPad 2 for $ 399 or the $ 249 quad-core Asus MeMo slate that could become an even cheaper Google Nexus tablet. And that reported 1920 x 1200 resolution Kindle Fire is the same that is likely to be used by 10-inch tablet from Lenovo and Acer. At 8.9-inches, such a display would be a crisp 254 pixels per inch; great to look at, but not cheap to own.

Again, Amazon could be taking a page from Apple’s playbook and negotiating superb deals on displays and other components, which would help keep device costs down. And we already know that Amazon is willing to subsidize the Kindle Fire hardware and make up the difference in content purchases.

The key to expanding the lineup of Kindle Fires — if there’s even a need for two or three more — will come down to Amazon’s ability to manage component prices and subsidies. I’m not sure it even needs to worry about this yet because I don’t see any competition, save the Nook Tablet, able to snuff out the Kindle’s Fire.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.