What Amazon Should Do With Its Kindle iPad App

This week, the iPad app world is frantically sorting through some recent changes in its environment. Apple (NSDQ: AAPL) has quietly altered its app approval policies in a way that will make publishers – in particular, subscription-based publishers like The New York Times – much happier. Specifically, Apple has relaxed its control over whether apps can access content paid for outside of the App Store’s purchase APIs. The company has also given control over pricing content back to publishers, allowing them to price however they want, both outside and inside of the app.

Interestingly, in the same week, the Financial Times released the first major subscription-based HTML5 web app intended for iPad users that bypasses Apple entirely, giving the publisher its own path to market that does not depend on or enrich Apple directly. The coincidence of these two events is not lost on most of us industry observers and is the topic of a new Forrester report by my colleague Nick Thomas. In it, Nick explains why the FT‘s move is probably the first of many such moves by the most recognized publishers, even with Apple’s newly announced policy reversal.

But while publishers figure out their next steps for their content apps, there’s one app that no one is talking about but I believe everyone should have their eye on. It’s the Amazon (NSDQ: AMZN) Kindle app. This app violates all of Apple’s policies – it has a buy button that shells the user out to a browser to complete the transaction using Amazon’s customer authentication and purchase systems. In fact, back in February when several publishers and booksellers contacted me to ask why their apps were being rejected by Apple, it was always the Kindle app they pointed to as the model they had used for their own app development. Once Apple finally explained that it had extended to existing apps a grace period through June 30th, the other publishers and app developers quieted down somewhat, but it essentially set a clock ticking on Amazon’s place in the App Store.

Amazon was actually one of the first of Apple’s competitors to seize on the iOS platform as a distribution mechanism. It was in March 2009, less than a year after the launch of the iPhone App Store that Amazon released the first Kindle app. At the time, many reporters I spoke to assumed this was foolish on the part of Amazon – why would Amazon bolster a competing platform when it was trying to make inroads with consumers on its own Kindle device? I explained then – and still believe now – that Amazon was living according to new digital rules, where you satisfy your customer’s need, regardless of whose platform they are on. This was industry-leading strategy and it has paid off for the company.

Now it’s time for Amazon to lead once again. While the FT‘s new web app shines a guiding light on the path that other publishers should take to distribute content to iPads and other tablet devices, whatever Amazon does with its app will have even more far-reaching implications because it will teach other developers – whether publishers or not – how they can deal with Apple’s tendency toward ecosystem control.

I don’t claim to know that company’s plans, but I will claim to tell Amazon what it should do:

1) Release an updated, compliant App Store app, with a little attitude. There’s no reason to snub millions of iPad and iPhone owners so Amazon should release an app that complies with Apple’s new rules. But this app should have no Buy button at all. Instead, it should be positioned as a Kindle reading app where people who have purchased Kindle books elsewhere can access them for reading on an iOS device. And the company should just let its iOS readers know that although it would like to help them shop for and buy books, it is not allowed – as per Apple’s policy – to do so. This is how the company handles eBooks it does not control pricing for, simply informing the customer that it’s not Amazon’s fault a digital book costs $12.99 when the hardback is available on Amazon for $13.99 (see Hillenbrand’s Unbroken for an example of this http://www.amazon.com/dp/B003WUYPPG/).

2) Release an amazing HTML5 “app” that gives Kindle readers everything Amazon has to offer
. I have to believe that Amazon is furiously at work on this app already, but if not, consider this a very public encouragement to begin such development forthwith. The challenges of HTML5 should be nothing for Amazon’s developers. Building an app-like experience for web browsers on any HTML5 device opens doors for Amazon to expand its customer relationship to include Netflix-style video streaming, paid VOD, and its cloud music service. Think of it as an Amazon iTunes store – not just a Kindle store, and now is the time to do it, while all eyes should be fixed on Amazon.

All of this has some messy implications for Amazon’s own Android Appstore, by the way, which also has a 30 percent revenue share policy and does not currently allow for magazine app subscriptions but will have to. Will Amazon offer publishers and even competitive app developers the policies it wishes Apple would have offered? Remember, this is a company that enables hundreds of other retailers to sell competing products at whatever prices they want on the Amazon web store.

Conversely, Amazon may wish to follow in Apple’s footsteps for as long as the 30 percent and customer control things last. Whatever it decides, it should hurry up and get through this, because none of this deals with the hardware side of Amazon’s business, where the company is falling far behind rival Barnes & Noble (NYSE: BKS) which has two Nook devices that make Amazon’s current Kindle crop feel a bit like Palm (NYSE: HPQ) Pilots.

James McQuivey is an analyst at Forrester Research, where he serves Consumer Product Strategy professionals. James blogs here.

This article originally appeared in Forrester Research.