Usability expert Jakob Nielsen has focused his expertise on the Kindle Fire and found it lacking in several areas. For clarification, this is not some random blogger reviewing the Fire. You can see his credentials and links to outside critiques of his work on his About page.
The biggest issue turns out to be one of size. At 7 inches, the device doesn't work particularly well with full-size websites or mobile sites. The iPad and other 10-inch tablets allow you to easily navigate full-size websites with your fingers. You can do the same on a phone that has a 4-inch or smaller screen when the site is designed for mobile users.
At 7 inches though, that full-size site is difficult to navigate or enter data with your fingers. The Kindle is at its best when a server serves up the mobile page, which the user can control to some extent in the Fire's settings. The problem, though, is mobile pages often aren't as rich as full-size pages. Thus the user must choose between difficult navigation with links and boxes that are too small, or a trimmed-down mobile site.
You should read the rest of Nielsen's overview on usability if you are contemplating a Fire for yourself or a loved one this holiday season. You might find a regular Kindle would be better for someone who has e-books as a primary interest, or decide that coughing up an extra $300 to get the base iPad 2 is worthwhile to have a truly enjoyable tablet experience. Or, you could skip it altogether and use the $199 on something that gives great value in its category, not a compromised experience.
A J.P. Morgan analyst feels the Fire won't steal iPad sales, rather, it will actually help sales. His logic is the Kindle Fire will only whet their appetite for a great tablet experience. This analysis meshes with Nielsen's usability study. Someone that might not have originally considered a $499 tablet may do so after using the Fire and getting a glimpse of what a tablet can do.
It doesn't mean the Fire doesn't have a market. It does, but anyone getting one and expecting a slightly smaller iPad experience is likely to be in for a disappointment.