Why Amazon’s Tablet Will Challenge Apple In A Way That Google Cannot

Amazon Appstore

The rumours are unstoppable: Amazon (NSDQ: AMZN) is going to unveil a tablet in the next few weeks, and if the hands-on description of an internal prototype by MG Siegler over at Techcrunch are even vaguely correct, then it’s going to be a 7in device with a colour touchscreen running a forked version of Android, at a price around $250.

Note that “forked” bit, because it could be crucial.

The expectation around Amazon and its entry to the tablet market has been building, partly because it is the first–and possibly the only–company that people think could pose a serious threat to Apple (NSDQ: AAPL) in the tablet space.

Why, when there are dozens of different tablets out there–from Samsung to Acer to Asus to RIM (NSDQ: RIMM) to Motorola (NYSE: MMI) to HP’s TouchPad (very limited stocks only!) to, I don’t know, throw a stone and you’ll hit someone making a tablet–why should it be that it’s only when Amazon comes to the tablet table that people think it will make a difference?

Two simple reasons: Amazon is a conduit to lots of content; and, just as importantly, it already has a way for you to buy content from it. Like Apple, it is one of the 10 biggest merchant holders of credit card numbers in the world (along with companies such as eBay (NSDQ: EBAY), PayPal, Sony (NYSE: SNE) through the PlayStation Network and Microsoft (NSDQ: MSFT) through its Xbox Live system).

Notice the company missing from that list? Google (NSDQ: GOOG). It has almost no relationship in financial terms with the average person. Not surprising, given that it only really got its act together with AdWords to become profitable in 2001, and that all its business is done with customers who are advertisers, rather than “customers” in the form of its users. Yes, it has advertisers’ financial details. But those are a tiny fraction compared to its huge number of users.

By contrast Apple and Amazon are familiar as transaction handlers: Apple has 200 million iTunes accounts, of which a very significant number have credit cards attached. Amazon isn’t quite as big, but for people in North America and Europe, it’s a company they trust with their details.

Yes, yes, but what has this got to do with tablets? Simply that tablets lack what smartphones have: ready-made content. If you’ve got a smartphone then its obvious use is for making phone calls or sending texts – essentially, you create the content. The data-enabled stuff is a bonus.

With tablets, though, that’s reversed. A tablet is a tabula rasa–a blank slate until you get something onto it. Yes, with the standard Android tablet you can do some browsing, and triage your email, and check what the weather is going to be tomorrow on a weather app, but truly, when it comes to content, Android Honeycomb is simply dire; it’s no contest with what you can get in app terms on the iPad. I’ve been trying a Samsung Galaxy Tab 10 over the weekend and while it’s a nice piece of kit, the call for apps that will show off Honeycomb to its fullest draws a silence as wide and deep as the ocean. The most detailed suggestion I got the other day suggested 10 apps, including an office suite (already on the Tab), a Twitter client (there are literally a million already), a keyboard app (there’s already a soft keyboard), Google Music (doesn’t work outside the US), and a browser (Android has one already). So that leaves five more: Google+ (available on the iPad), Pulse (a newsreading app like Flipboard), a sketching app (there’s a zillion on the iPad), a remote control for watching HD content (if you’ve got it on your home network)–and, last but not least, Kindle. From, as you know, Amazon.

For the iPad? Ask and people won’t stop–Keynote (for writing presentations), Garageband (for writing music), Flipboard, iPlayer (the Android Honeycomb iPlayer “app” isn’t–it’s just a redirect to the BBC website). And on and on.

Why are apps so poor on Android? I think it’s the classic problem: users find it hard to pay for apps, because there’s no simple payment mechanism (is it credit card? Google Checkout? Carrier payment?), which makes them uneasy. So good developers can’t get paid, so they don’t develop good stuff, so the Android Market is overrun with rubbish made at the lowest possible cost, because there’s no point killing yourself to not get paid.

(Yes, I know people who have bought stuff for Android will be saying at this point “No, really, you can!” The fact though is that most people see the price and abandon the process because it’s not clear who will be in charge; the stories about Google setting up payments systems with carriers only confuses things, rather than helping.)

Bringing Amazon in changes all that.

Amazon is building its own app store (hence rows with Apple over whether it can call it an “app store”) which means it will be able to sell apps. Sensible developers would want to be associated with it: that would be the way to get paid, at long last, for Android apps. Don’t be surprised if it has its own payment system which uses your existing Amazon account to let you buy stuff–not just apps, but also music (Amazon MP3s) and video (Amazon now owns LoveFilm). And if you can’t find the content you want digitally, you could always order it directly from, well, Amazon.

Having all those credit cards logged on its servers is going to be fantastically useful for Amazon. But don’t expect it to spread the love to other would-be Android tablet companies. Amazon is a ruthless competitor too, and forking Android is a smart move that means it can drive it in the way that it wants. I’d expect the Amazon app store to be the default on its tablet, perhaps using your Amazon credentials, and I expect that it will offer a far better experience than most Honeycomb tablets.

The objection from Android tablet users at this point will be “but if Amazon makes us log in using its credentials rather than Google’s, I’ll have wasted all the money I spent purchasing apps. Both of them.” Simple answer to that: you can download the apps using your Google credentials and then switch to the Amazon login. Second simple answer: most people don’t have an Android tablet, which means that most people will be setting one up for the first time. So they won’t have any “Android Market” labs apps to “lose”.

And what about Google? The danger there is that it is going to turn into Microsoft – that is, that despite having the most successful product (in terms of market share), that it will be disconnected from its users. Microsoft has Windows and Google has search; the problem in both cases is that though they can see what you’re doing, they have to stand apart. They don’t hold your credit cards, and have no easy system of transaction with you. Arguably, Google is further behind in this race, because at least Microsoft has Xbox Live, and the small but eager band of Zune Pass users. Sure, Google+ has millions of users, but I don’t recall handing over my credit card number to get onto it.

Without that ability to get people to hand over money directly to it, Google hasn’t got a chance of building a financial relationship with the users of search or of Android. That’s what’s different about what Apple has done since 2003, when it started the iTunes Music Store. Amazon, of course, has been going even longer. Both are ready to accept your payments. Google, however, is still hobbled by having no obvious way to let you pay for quality products on Android.

Amazon, by building its own app store, has the chance to overturn the established order; it’s the first proper challenge that the iPad will face in terms of a rival that can offer not just a product, but also something to fill the product. If it really succeeds, it could even draw developers out of the wider Android Market and into the Amazon app store exclusively. Once that starts to happen, Google will have a dilemma: is it good or bad if more of the money being made out of Android app sales is going to someone else? Will Amazon lock out rival tablet makers such as Samsung from its app store? (I expect so.) Is that good or bad for Android on tablets? What should Google do?

And there’s Google’s problem. Its relationship with its users is too like Microsoft’s. Instead it needs to be more like Amazon. But competing there would cause problems too. Android for tablet sits on the horns of a dilemma: what it needs to succeed–a content retailer about to challenge Apple–might be what kills off rival makers. And if Google tries to change the rules of the game–say, by insisting that Amazon open its app store–then it could break everything.

This article originally appeared in MediaGuardian.

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