ON September 28, Amazon CEO Jeff Bezos introduced the Kindle Fire tablet. Priced at $199 and lacking many of the features of Apple’s iPad, the Fire garnered a mixed response from analysts. While Barnes & Noble’s Nook and many of the competition’s Android-based tablets might have reason to worry, there was a strong consensus that Apple shouldn’t fret and that it should keep on doing exactly what it’s doing—making increasingly more powerful tablets. Everyone agreed the Fire was no “iPad killer.”

But it’s precisely this type of thinking that can leave high-performing companies like Apple open to the threats posed by competitors.

The Fire isn’t just a low-end competitor to the iPad. It has a scalable technology that the current iPad lacks—its extensive use of the cloud. What’s more, the Fire has a business-model advantage, too: Amazon plans on using content sales to subsidize the tablet’s hardware.

All of which means that the Fire has the potential to disrupt the iPad.

For the next few years, things are likely to look good for both companies. Apple will maintain its dominance in the upper tier of the tablet market, and Apple’s margins will continue to improve as it grabs market share from PCs.

Initially, Amazon won’t steal many of Apple’s customers. Apple will view Amazon as a niche player at the low end of the market, peddling an inferior product. But there are plenty of consumers who can’t afford an iPad and would much prefer the Fire to having no tablet at all.

At some point, the iPad’s performance will overshoot what the vast majority of consumers require in a tablet. Meanwhile, the Fire will continue to improve, eventually working much like an iPad, but for much less money—at which point Apple’s customers will start switching. By then it’ll be too late for Apple to respond and Amazon will have become the new market leader.

To avoid this fate, Apple can do what it did with the iPod: introduce a much cheaper version of the same device with substantially reduced functionality. If it makes such a move, Amazon’s tablet is dead on arrival.

And therein lays the challenge for incumbents facing a disruptive threat: Apple can crush Amazon tomorrow by redoubling its efforts in the low end of the market. But what would the market gurus and Wall Street analysts think of such a move?

Rob Wheeler is a fellow at the Harvard Business School’s Forum for Growth and Innovation. Prior to that, Wheeler served for four years as an officer in the US Army.