Many people expect that Amazon will soon enter the burgeoning tablet arena increasingly dominated by Apple. While few expect the rumored Amazon tablet to be a viable threat to the iPad’s dominance, many think that it could earn a comfortable niche in the middle tier of the market. I, however, disagree with most analysts.
I don’t see Amazon blossoming in the tablets war, whether in the lower or middle tier of the market. Amazon, therefore, will not build a general purpose tablet.
Amazon does not build great hardware. While the strategy behind Kindle is brilliant, the Kindle is not special because of revolutionary hardware. Amazon’s primary purpose behind selling the Kindle is to strengthen its foothold in a fast growing e-books market. Since most publishers sell books via Amazon, a leading books selling portal, they are also inclined to produce Kindle versions of the books. This has helped Amazon take a substantial lead in the e-books collection over competing e-book readers such as Nook and Sony’s E Reader.
Amazon’s primary benefit in dabbling in hardware is not direct profit. Amazon’s true motive is to strengthen its position as a content seller , and while it won’t hurt to sell more hardware, that is not Amazon’s focus at least in the short term. Kindle hardware constitutes a mere 1-2% of Amazon’s stock value so unlike Apple, who is infamous for making the bulk of its money off its hardware (iPods, iPhone, iPad), Amazon thrives on content.
However, Amazon may very well launch a special-purpose tablet. What could Amazon gain by launching it and what would the tablet do?
When it comes to content, Amazon is the king. It’s MP3 store, while hugely undershadowed by Apple’s iTunes, comes as the default player/store on several Android devices, which are fast growing in popularity. With the launch of Amazon Cloud, Amazon has taken a step further, ahead of Apple’s or Google’s rumored cloud based music services.
Not only does Amazon want to lead in selling digital content, it has also shown that it will leverage its dominance in the e-books market to further its lead. While most Kindle content is available via several platforms such as Mac and iPhone – Kindle Singles, short e-books, are only available on Kindle hardware. By tightly controlling the content in the beginning, Amazon is determined to popularize Amazon Singles, and will thus dominate a new niche in the market.
Just like Kindle Singles, Amazon Studios is another service launched quietly by Amazon. The purpose is to encourage producers to make movies exclusively for Amazon. While it’s nowhere close to taking off, Amazon does want to be a content creator in that space, and when that happens, that would be yet another reason for Amazon to closely manage its content.
Amazon Instant Video is yet another example of Amazon’s ambitions in dominating digital content and its distribution. While it is not creating content at the moment, I bet it will follow Netflix’s lead in licensing original content via its Amazon Studios or else.
And now with the launch of Amazon Appstore and Amazon Cloud, Amazon is even more likely to launch a device that will make it easier for users to access their Amazon’s digital library, whether e-books, videos, MP3 songs, or otherwise. While this hypothetical device will be no competition to Apple’s iPad, it doesn’t need to be. It will be a product that is clearly differentiated from Android tablets as well. Amazon’s biggest challenge will be to build a decent device at an attractive price point.
Amazon’s existing user base, especially those who consume its digital content, will be the primary audience of this tablet. Moreover, by creating custom content such as Singles, Amazon will be able to attract new users who will not be able to find the content anywhere else. Increasing stickiness with existing users and attracting new users will further incentivize content creators to distribute content via Amazon, thus not only increasing Amazon’s dominance in the content distribution but also increasing sales of Amazon hardware.
This is a war Amazon can win.
