I think the Fast Company article gets it:
So here's what seems likely to happen. Aware that it's facing increasing competition in the core iPad market, Apple will ace it with the iPad 3 as a mid-to-premium price device. Also aware that strong sales of the Fire mean consumers do want a cheaper device that delivers good performance, Apple will keep perhaps just one size of iPad 2 on sale (perhaps the 16GB Wi-Fi edition, entirely untouched inside) and drop the price to something crazy--like $350 or perhaps $299. This will still let them make a small profit on every one, as well as incremental profits from ongoing spends in the App Store by consumers. Apple won't compete directly with the "cheap" but technologically inferior Fire, instead tempting customers to spend just a few dollars more on the "real deal" that has a bigger screen and can play games--and lets you write novels on it too, should you want to release your inner Paula Fox/Paul Auster.
That's an Apple solution. No iPad Mini. No iPad "lite." Just iPads 2 and 3.
A $299 iPad 2 would really squeeze the KF and the NC unless there is true love out there for the 7" form factor-which I for one doubt.
Another problem for the KF-if the iPad 3 is a compelling upgrade, you'll see a big market in used iPad 1s for under $300. This won't stop the KF from being a big hit- but it won't be quite the monster home run people think.