On paper, the new Amazon Kindle Fire HD 8.9 blows the iPad 3 out of the water. The Fire HD is thinner, lighter, and smaller than the iPad 3. The Fire HD has dual stereo speakers with Dolby Digital Plus, while the iPad has a single mono speaker. Where the iPad 3 is capable of 22Mbps 802.11n WiFi, the Fire HD has a MIMO antenna capable of 31Mbps.

But most importantly, the 16GB Fire HD — with its 1920×1200 (254 PPI) Retina-equivalent screen! — is a full 200 dollars cheaper than the 16GB iPad 3. If you step up to the 32GB models, or the 4G LTE models, the price difference jumps to $230.

Now, for a start, this price disparity gives you some idea of Apple’s ludicrous profit margins, but it also illustrates the very different tack that Amazon is taking. The 16GB WiFi iPad 3, at launch, cost roughly $300 to build. Given its slightly cheaper materials (plastic chassis rather than aluminium) and Amazon’s weaker supply chain, the 16GB Kindle Fire HD 8.9 probably costs around $300 as well.

Instead of making a huge profit on every device, Amazon instead opts to sell its tablets at cost price, relying on aftermarket purchases (Prime, movies, e-books, music, TV shows) to turn a profit. For this technique to work, Amazon has to sell a lot of tablets — but considering the first-generation Kindle Fire sold somewhere in the region of 6 million units in its first 9 months in the US, comfortably outselling every tablet except for the iPad, I don’t think Amazon will have a problem moving units.

The original Kindle Fire didn’t go up against the iPad, though — it was a cheap, chunky, 7-inch device that stood alone until the Nexus 7 appeared a few months ago. It was the perfect Christmas present, or the ideal buy for someone who was thinking about getting a tablet, but didn’t want to plunk down $500 for an iPad or Galaxy Tab.

The Fire HD, with an impressive screen, fancy speakers, and svelte form factor, is obviously targeted straight at the iPad (and indeed, both Jeff Bezos’ presentation and the Amazon.com product page for the Fire HD draw comparisons with the iPad 3). The question is, does the Kindle Fire HD 8.9 have what it takes?

Amazon Kindle Fire HD 8.9 vs. Apple iPad 3 Kindle Fire HD 8.9 iPad 3 Price (WiFi, 16GB) $299 $499 Price (4G LTE, 32GB) $499 $729 4G data plan $50/year $200/year Screen size (inches) 8.9 9.7 Screen resolution 1920×1200 2048×1536 RAM 1GB 1GB Thickness 8.8mm 9.4mm Weight 575g 652g OS Android 4.0 (modified) iOS 5.1 Processor Dual-core OMAP4470 @ 1.5GHz Dual-core A5X @ 1GHz Wireless connectivity MIMO Wi-Fi (802.11a/b/g/n), Bluetooth WiFi (802.11/a/b/g/n), Bluetooth Camera “HD” front-facing camera 8MP rear, VGA front-facing Video N/A 1080p (rear) Speakers Dual stereo speakers (with Dolby Digital Plus) Single mono speaker Battery Unknown (probably 8 hours) 10 hours

In terms of hardware, the iPad does have a marginally larger and higher-resolution screen — but early reports suggest the Fire HD might have a better screen, in terms of contrast, glare, and so on. The iPad 3’s A5X system-on-a-chip (SoC) is comparable to the Fire HD’s Texas Instruments OMAP4470, with the iPad 3 possibly having a slight edge on graphics performance. Curiously, there’s no rear-facing camera on the Fire HD. In exchange, though, the Fire HD has better sound and wireless connectivity.

On the software side of things, the Fire HD is running a customized version of Android 4.0 Ice Cream Sandwich, and the iPad runs iOS 5.1 (soon to be upgraded to iOS 6). There’s no denying that iOS has access to more apps (500,000 vs. tens of thousands in the Amazon Appstore), but the Fire HD has access to most of the vital apps, including Skype, Netflix, HBO Go, and of course Angry Birds. When it comes to other kinds of content, though, like movies and TV shows, Amazon is best in class.

We can compare hardware and software specs until the cows come home, but ultimately it boils down to this: Is the $200 price difference big enough to sway would-be buyers away from the iPad? Really, when we boil it all down, the main thing the iPad has going for it is the Apple Experience — and is that worth $200?

For existing tablet owners (most of which are iPad owners), it’s hard to say; they’ve already bought into the app ecosystem, filled up their iCloud, and sipped the Jobsian Kool-Aid. It would cost a lot more than $200 to make me switch from Windows to Mac or Android to iOS.

For new customers, though — and remember, the vast majority of consumers are first-time tablet buyers — saving $200 is a huge deal. For $200 you could buy two years of Netflix, or you could buy Little Timmy his own 7-inch Kindle Fire HD.

Remember, while the tablet market is growing very quickly, no one knows how it will turn out. Apple, Amazon, Google, and Microsoft all have very different visions, but at the moment all they can do is attract as many customers as possible — and then see how this tablet thing shakes out. Amazon knows that tablets could be the next best thing, and if it takes a $300 at-cost tablet to tie users into the Amazon Experience, that’s a small price to pay. It seems Google and Microsoft will both take similar approaches, too, selling tablet hardware at very close to cost price and hoping that their ecosystem will be the one that wins out.

It will be very, very interesting to see how Apple reacts to the Kindle Fire HD 8.9 and other cheap tablets. Historically, Apple has been happy with a low market share and high profit margins — but with the iPad, Apple has monopolized an entire, very lucrative market segment. You can’t see the Cupertino company ceding control without a fight — but just like Android smartphones and Windows PCs, there is no way that Apple will continue to competitively attract new customers unless it competes on price.

Read: A closer look at the apps and features of Amazon’s Kindle Fire HD software