That's fine with Amazon, because it thinks it will be able to sell enough books, magazines and music to cover its costs and earn a profit over the lifetime of the device. "Amazon is, in effect, seeding the market with their devices," says Danielle Levitas, vice president of IDC's consumer, broadband and digital marketplace division.

"This is typical Bezos," says Davidowitz. "He is buying market share. Isn't that his record with everything he does?"

Essentially, Amazon's approach is the flip side of Apple's. Apple makes money via premium prices on devices, and not so much on content. In contrast, Amazon is selling devices at a loss, with an eye toward making money on content.

JPMorgan Chase (JPM) analyst Doug Anmuth thinks Amazon will sell 5 million Kindle Fires in the fourth quarter. For context, Apple shipped 11.1 million iPads in the third quarter, according to IDC. In other words, in a single quarter Amazon will vault into the position of being a serious iPad competitor.

To be clear, the Fire is no iPad substitute. For one thing, the Fire has a seven-inch screen, compared with the iPad's 10-inch screen. But Tom Mainelli, a research director at IDC, thinks Amazon will roll out a Kindle Fire with a 10-inch screen in 2012. "I think Amazon ships at least half as many units as Apple, in 2012, if not more," he said.

Others burned by Fire

While primarily designed to take on Apple, Amazon's Fire is going to burn several innocent bystanders in the process. Things don't look too good for the Nook Color media tablet offered by Barnes & Noble (BKS). It costs $50 more than the Fire, and it doesn't offer such deep access to content or cloud storage. The BlackBerry PlayBook, the 7-inch tablet from Research In Motion (RIMM), also looks like a potential victim, given its now-absurd price tag of $450.

Amazon looks set to do even more damage to established players in digital streaming content, like Netflix (NFLX). This is a huge, early-stage consumer trend. There are currently 9 million households in the U.S. watching digital streaming content like movies, a twofold increase over last year, says Levitas of IDC. Watching streaming digital content, as opposed to DVDs, will continue to grow rapidly as people become more comfortable with it. The Kindle Fire will no doubt help that happen -- and put more consumers in the hands of Amazon, instead of Netflix, in the process.

All of this means Amazon is being punished by the market for investments that look to start paying off as soon as next year. Remember the forever clock rule, ignore the naysayers, and an investment today could pay off for years to come.

At the time of publication, Michael Brush did not own or control shares of any company mentioned in this column.

Michael Brush is the editor of Brush Up on Stocks, an investment newsletter. Click here to find Brush's most recent articles and blog posts.