At $199 it's too pricy for most, given the untested/unfamiliar niche. At $99 (select Prime members), some of is might give it a chance. I'm reminded that Apple started its move into mobile devices with the iPod (established against a popular yet muddled market of MP3 players) with the brilliant low-friction addition of the iPod Touch (for a tiny bit more get the browser, email, etc), which then led to merely slapping a cell phone module on & creating a plus-sized version. This device, however, isn't (corrections welcome) building off anything people are already familiar with, save perhaps "bluetooth speakers".
Will be interesting to watch. I assume Amazon's prime interest is gathering more about what content people actually consume, and (if implemented well) observing shopping lists. I'm intrigued by the casual simplicity of "add _____ to my shopping list", something I could get used to fast.
ETA: you're right, iPod Touch came out shortly after iPhone. I was enthralled with the former at the time, while the latter was far enough out of my price range I didn't even bother paying any attention to it.