Amazon can hit Apple high with the Kindle Fire, which is the first non-Apple tablet that will offer as integrated a media service as Apple's ecosystem does. And it even comes with a hard-to-believe-but-awesome-if-it-works feature that Apple doesn't have: cloud-enhanced web browsing. The Fire will supposedly offer better mobile browsing because it offloads the computationally intensive bits off to Amazon's cloud computing service.
Amazon can also hit Apple on the weight of the iPad 2. The iPad weighs 21.6 ounces. The Kindle fire weighs 14.6 ounces. It doesn't seem like a lot, but when you're reading with one hand. those 7 ounces are big. Put it this way: the iPad is the weight of a sizeable hardcover book while the Kindle Fire is the weight of a paperback. Which do you like to carry around more?
Unlike other companies who are trying to knock off the iPad, Amazon seems to have a strategy here that plays to its strengths: readers, cloud computing, e-retailing, end-to-end media services. If nothing else, that should make Amazon a real competitor. You get the sense from the company that they are trying to do something rather than copycatting something that's worked.
There could be some downsides to the new Kindle plan. By splitting its offerings for consumers, they may lose some of the branding focus they could have had with less products. Apple, in phones and tablets, has been successful with its laser-like focus on the iPhone and iPad. But then again, in music players, Apple's differentiated its players for years. The bigger problem may be that the Kindle Fire can't live up to the expectations that Amazon has created. Based on its specs, it's not all that different from the failed tablets that came before it. What if the implicit comparisons people make between it and the iPad make its capabilities seem lackluster?
Your move, Apple.