It’s nothing to do with the iPad. It’s nothing to do with tablets, even.
Their target market isn’t people who want a small iPad, or an Android tablet, or any of that malarky. Their target market is people who want what this is, which is a colour Kindle. It’s targeted at a current gap in the market which is people who really want a Kindle but are put off by the fact that it’s a monochromatic display.
Ie, it’s aimed at idiots. It completely bypasses most of the primary reasons why you’d want to read an eBook on a Kindle rather rather than a tablet (high contrast screen, viewable in daylight, mahoosive battery life, and all that). They’ve kept the ‘small and light’ form factor (-ish) and bolted on a few extras like cloud-based web browsing (which is a pretty killer app together with their free 3G roaming, if it works) and media playback, but it is first and foremost a book reader. The current Kindle can play mp3s; hands up who uses it for that, then?
Not to say that “if you buy a Kindle Fire, you’re an idiot” – far from it, it has a number of attractive features for the price. All I’m saying is that you’re probably outside of their primary targeted audience if you’re buying it as anything other than a book reader with a colour screen.