Updated: Amazon Launches Its Appstore — Is A Tablet Or A Handset Next?

Today Amazon (NSDQ: AMZN) has launched its newest onslaught to the digital media economy: an Android app store, appropriately branded “appstore”, beginning with nearly 4,000 apps and counting. Why will this latest app store be different from the rest, and what’s next for the giant e-tailer?

The store will initially only be available to customers in the U.S. Amazon is handling the billing for now, but is working with AT&T (NYSE: T) (and possibly other operators) to enable purchasing via the operator’s own billing system, putting the charge directly on the customers’ mobile bill.

Before the store even went live, Amazon was already peppering the internet with links to the site (one was uncovered last week, along with initial price lists for apps), to specific apps on the store and even a developer portal. Some of these are not yet working as “live” links but one can still access them via their cached versions on, for example, Google’s search results page.

What is setting the appstore apart from the others? In a market brimming with native and non-native app stores already, this is probably the key point in driving traffic to Amazon. So far, Amazon looks like it’s being clever with its approach:

— Like other app stores, Amazon requires developers to submit their apps for approval before they can go live on the store. Amazon’s terms and conditions, however, appear (for now) to be significantly looser than those for some other app stores, with the main criteria for approval being that the apps are determined not to harm a users’ system.

— Unlike other app stores, Amazon has decided that it will wield control over how apps are being priced — although developers can suggest a retail price. This will let Amazon promote certain apps for free, before potentially hiking up the charge at a later stage when downloads have picked up momentum. This appears to include a promotional scheme to offer one normally paid-for app as a free download every day. To kick things off, it looks like Rio, the new Angry Birds game that Amazon nabbed exclusively for the appstore, will be free at first, later going up to $0.99 per download.

Amazon looks like it will follow the Apple (NSDQ: AAPL) and Google (NSDQ: GOOG) model for splitting revenues on paid apps, but only in part: publishers will either get 70 percent of the sale price with Amazon keeping 30 percent; or 20 percent of the sale price suggested by the publisher — whichever is greater. (Presumably this is how Amazon can get around suddenly making a paid app free of charge.)

This pricing control is right in line with how Amazon has run other content sales on its site up to now, for instance, undercutting many other booksellers with its deals in the hopes of encouraging more purchases and/or return business on books with more favorable sales margins.

Recommendation. In line with the free apps and driving more/repeat business, Amazon will also be harnessing its formidable recommendation engine to suggest other apps to users — and it wouldn’t surprise me to see that recommendation engine extending to Amazon’s other content offerings (eg, if you liked Angry Birds “Rio,” how about buying this book on Angry Birds tips, or this plush toy?)

Even before launching, the store has been driving controversy, with Apple hitting Amazon with a lawsuit over the use of the name appstore. The store echoes the complaint made in January by Microsoft.

Apple’s attempt to control the name “app store” is part of a bigger play by app storefront owners to continue to control their brands and distribution channels.

Amazon itself is no stranger to that, either: it has revoked API access to the Lendle Kindle e-book lending app, for discouraging people from buying the books for themselves.

So how far will that control of distribution channels go? Amazon has been entirely silent on the idea of developing an Android-based Kindle device — blurring the line between e-reader and tablet ever more — but with the launch of appstore this possibility seems more likely than ever before.

Amazon has been gradually taking its Kindle to a wider market — selling it not only via mobile operators like AT&T but also, crucially, via strong and influential retail powerhouses like Best Buy and Carphone Warehouse. While that looks, on one hand, like a strategy to pick up the second wave of Kindle adopters beyond early-adopting, Amazon-loving consumers — it also could very well be a strategy to lay the groundwork for a push on even more devices.

Creating a tablet fits in neatly with Amazon’s strategy to control its content ecosystem and would be a perfect complement to the company’s other media plays — specifically its Netflix-competing movie/video rental and purchasing business and its iTunes-competing music downloads business.

Given that Amazon has already carved out a substantial place for itself as a reseller of mobile phones and mobile contracts, it would be far from surprising if the company decided to take advantage of the open-source ease of Android to develop handsets, too.

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