I think John really hit the nail on the head here:
"The iPad is a credible laptop replacement for many people — and with iCloud and another year or two of hardware improvements, that’s going to be true for more and more people. The Kindle Fire is a laptop replacement for almost no one. It’s a peripheral, not a second computer — and it’s priced accordingly."
- John Gruber
Both the iPad and the Kindle Fire enable a great multimedia/web viewing experience. People who don't want a laptop replacement (and are willing to invest in amazon's media) will love the Kindle Fire, and those that do will love the iPad. I think each of these will be very big market segments.
I think I fall into the former group, which is why I'm so excited for the Kindle Fire. I predict that Apple will also want to go after the non-laptop-replacement-segment and will eventually release a 7" as well. Which I will also buy because I'm a whore.http://daringfireball.net/2011/09/amazons_new_kindles