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Summary:

Amazon’s announcement of their media tablet the Kindle Fire was long anticipated. I won’t add to the countless virtual column inches discus…

Jeff Bezos and Steve Jobs with Kindle and iPad

Amazon’s announcement of their media tablet the Kindle Fire was long anticipated. I won’t add to the countless virtual column inches discussing whether it can be an iPad Killer (though I do agree with my former colleague Michael Gartenberg that it is competing more with the iPod Touch than it is the iPad). Instead I think it is worth comparing and contrasting Apple’s and Amazon’s strategic reasons for being in the tablet game.

As I stated in a previous post, Amazon (NSDQ: AMZN) and Apple (NSDQ: AAPL) are 2 of Digital Music’s Triple A (Android making up the third). Both have in their respective ways shaped online music more than any other company (Apple with iTunes, Amazon with online CD sales). Both willplay a major role in digital music’s, at the very least, mid-term future. But they are in digital music, and digital content more broadly, for mirror opposite reasons (see figure).

Put simply, Apple is in the business of selling content to help sell devices whereas Amazon is in the business of selling devices to help sell content. There is a poetic symmetry the identical yet polar opposite strategies of the two companies.

The differences have direct implications that are also mirror opposites:

  • Apple can happily ‘just about break even’ on music downloads because of the way it helps sales of their high margin i-devices
  • Amazon can happily price the Kindle Fire so aggressively that it is priced more like an MP3 player (and expect to lose money for the near term at least) because of the volume of sales of content it expects / hopes it will drive

Perhaps most importantly music, video, games, books and all other forms of content are crucial to the success of both. 20th century media business models may be tumbling around our ears but the fact that the future of the tablet market depends so heavily upon media products will be among the foundations for future growth.

» For 11 years Mark was a vice president and research director at Jupiter Research (later acquired by Forrester Research). He now blogs at MusicIndustryBlog.wordpress.com

This article originally appeared in Music Industry Blog.

  1. Very interesting viewpoint.  Hadn’t thought of it that way.  Love both of these, so it will be interesting to see if one model beats out the other…

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  2. @ @DarleneHull:disqus don’t think one model will beat out the other. I think they’ll both co-exist.

    The real losers in this are:

    1. Other Android manufacturers who will not be able to compete with Amazon on price and still turn a profit. Hell, they’ve had a hard enough time matching Apple’s lowest price.

    2. Google who’s been touting Honeycomb as THE Os for tablets only to have Amazon enter the game with a modded version of Android 2.2. How will this play out for Google’s Android plans when Amazon replaces the Nook (also using version 2.2) as the best selling Android tablet.

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  3. What’s strange is that their content pricing policies are opposite to what you’d expect for their respective strategies. Apple – who make profit from the hardware – keep music, ebooks and video at full price and almost never discount. Amazon – who presumably only make profit from music, ebooks and video – always offer them at massive discounts. You’d think it would be the other way around.

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  4. Amazon makes its profit off of scale and volume like WalMart and Costco.  It’s basically done the old-fashioned way; the key being inventory turns. Amazon wants people to buy often, and buy lots, and not just digital goods, but all goods that can be reasonably shipped. So how to do that?

    If one is likely to buy digital content from Amazon, then maybe they’d buy other more expensive stuff as well. Isn’t that the genius of tying free video streaming to Amazon Prime?  And now the Kindle Fire (including Silk) just makes it even more frictionless for people to buy everything from Amazon. No slow-to-boot, sit-at-a-desk, maintenance-required PC needed.

    Plus the Kindle will deter Apple from thinking about using its devices to someday growing into retail. And Silk will seek to hinder Google from using Chrome and Android to grow further into retail. If you didn’t think Apple and Google were thinking about it for the future, just think about what NFC, digital wallets/cash, and iTunes/Checkout/Wallet accounts is pointing to.

    So low-cost digital content is being offered up by both Apple and Amazon as an enticement to get the consumer to buy something else.

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  5. The Amazon tablet is a good machine for reading books. However, no camera, no microphone, for $199 to buy an lighter, thinner e-book reader is OK, but if compared to the iPad, I think the iPad have much superiority, not only have got many users, but also the hardware is better I think.

    Maybe to be a ereader and video&movies watch device is great! And want to know if all common format are supported, then I don’t need the Aneesoft video converter to do converting for my movies enjoy anymore.

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  6. Mark John Mulligan Friday, September 30, 2011

    I like the point about both Amazon and Apple using digital content as a means to an end, at least at this stage in the game.  Amazon are depserately trying to carve out market share and they’re willing to use aggressive pricing strategies to pursue this aim.  But they need to.  CDs (and books and DVDs) are the low consideration items they hook customers in with and then migrate them up the cosideration tree until next thing you know you’re buying fridges and laptops. If they cede all the music groudn to Apple they lose that crucial entry point in the customer purchase life cycle.  So Amazon need to both make money on scale of selling vast amounts of content (cheaply if need be) and they need to protect their long term future as music retailers.

    And a reason for Apple maintaining price points is that Apple is a high margin business and the Street loves that.  As digital content revenues increase in scale for Apple that starts to eat (allbeit modestly) into their overall margins.  This is also the context for the 30% subscription levy.

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  7. Author– intriguing, but please trace out the implications of the two different models.  Also, will a 7″ limited tablet from Amazon compete with a nearly full-fledged 10″ tab from Apple?!

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  8. I have an iPad (from work), a Kindle 3 and an Android phone (had a Blackberry until very recently).  I also have a high end laptop at home and another one at work.  I expect to continue to be a multi-device person given that each has its strengths and that the strengths are inherent in the physical characteristics. 

    For example, multi-tasking is good only on PC’s including laptops because of the ability to re-size windows and attach a large monitor if you choose; cutting and pasting are vastly superior with keyboards and mice.  These characteristics make them inherently much better at creating stuff (using multiple tools together).   

    For content the Kindles are much lighter weight and smaller than iPads, which makes them more convenient (can hold them up and operate them easily with one hand; can also carry/keep in ordinary purse or pocket).  Early ads for iPads showed them on a lap, user reclining with ankle of one leg crossed over the opposite knee…soft sofa or chair.  Yup, fine for casual times at home if you want a beautiful good-sized screen, but with one-handed Kindle you can use the other for various purposes and also sit up straight. 

    Why cameras on tablets?  Phones all have them these days anyway, and phones are the same size as most cameras anyway.

    My money is now on Amazon because of their advanced implementation of cloud computing along with their device-independence for content consumption.  They will offer many devices (including 10 inch tablets) with different options and different but low prices and people will choose what they want to consume as they want it where they want it and how (including non-Amazon devices), all managed and synched via the cloud. 

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