By introducing the Kindle Fire at an incredibly low price of US$200, some tablet manufacturers have panicked and surrendered without a fight. Most notably was the HP TouchPad that saw its price slashed to a mere $99. Acer halved its price on Iconia 500 recently, while ZTE was selling its tablet at $99 to an eager market a few months ago. Actually it has now emerged that what Amazon introduced was a specialty product, not a general-purpose tablet to compete head-on with the iPad and other tablets.
The Fire, and also the Nook, are clearly designed for reading and reading alone. They lack a camera, a microphone, 3G, bluetooth, GPS, accelerometer, gyroscope, compass, and video output. All these play a part in running many of the apps on the tablet. The camera is not just for taking pictures. With it you can do video call, and run the very interesting Google Goggles app. The microphone enables you to use voice recognition apps. GPS enables you to use many of the map-related functions. Video out allows you to use your tablet to play movies on the big screen. Accelerometer and gyroscope are great for more advanced games. Many apps will simply not work on the Kindle Fire or the Nook.
Tablet manufacturers can take it easy for now. The market for general purpose tablets is still in a flux. The price point has not been firmly established yet, unlike for Kindle Fire and Nook (which are what I call reader-based tablets). How much should you pay for a tablet? For unknown brands, and talking about the 7" tablets, you can expect to pay roughly* $200 (mostly made-in-China?). For branded ones, they are at $400 to $500 price points but will probably drop to $300+ before long as they come under increasing competition. As for the Touchpad saga, I think the HP CEO must have panicked and did not truly understand the tablet market at all.
* See http://www.dinodirect.com/ipads-tablets/currency-AUD.html