Why Amazon’s tablet can do well without being an iPad killer

ipad2overview_performance_20110302 (1)

Early details about a forthcoming Amazon tablet indicate the company could have a potentially successful Android tablet on its hands. It’s not for sale yet, but many have been quick to label it the first legitimate iPad challenger ready to hit shelves. But should Amazon do a decent job selling tablets, it’s not necessarily going to be at the expense of Apple selling a lot of iPads. And that’s because the two are coming at the business from two different angles, and their customers have different expectations.

TechCrunch’s early look on Friday of a pre-release model tells us the Amazon tablet will be a 7-inch color touchscreen tablet running a non-tablet version of Android on a single-core chip, with very little local storage. It will probably cost $250 and be Wi-Fi only to start, and it’s going to be called the Amazon Kindle. The name implies Amazon is not selling it as a tablet, but more as an e-reader that does much, much more. That makes it sound less like an iPad and more like the Barnes & Noble Nook Color. That’s the first of many ways that the two differ in their approach.

The cores of their businesses are also fundamentally different. Apple is a hardware company. The iTunes Store and App Store do well and they are important parts of  its business, but the purpose of the hardware isn’t just a pretty and pricey vehicle to sell music, videos, games, apps and software. The videos and apps are there to enable people to enjoy their iPod, iPhone or iPad. Amazon is an e-commerce company. They sell books, makeup, jewelry, electronics, etc. And, of course, lots and lots of e-books. That’s why Amazon sells the Kindle: principally as a way to sell more e-books.

Amazon also sells $79-per-year subscriptions in Amazon Prime that lets you get all the stuff you buy from them really fast for one low shipping price paid up front. Amazon’s forthcoming tablet is said to be integrated with Amazon services (think Amazon’s MP3 store, Cloud Drive and video-on-demand) you’re signed up for and, very significantly, free access to Prime. As Morgan Stanley says in a research note Tuesday, the latter is the key factor in what will make this tablet successful for Amazon:

The Tablet will accelerate customer adoption of Amazon’s Prime offering through potentially pairing the service with Tablet purchases. We estimate Prime customers annually spend 4-5x the amount of non-Prime customers and that global Prime customers total ~12MM of which ~7-8MM reside in the US (144MM total active users). Between new accounts and current, non-Prime accounts upgrading to Prime, net sales per active account has plenty of room to grow.

The idea of Amazon giving away free Prime subscriptions isn’t just a gimmick to get people to buy hardware. It’s one of the reasons they’re selling the hardware in the first place, since people buy more things when it’s easier for them. And people who have Prime, according to Morgan Stanley, buy more things from Amazon than those who don’t have Prime.

So those who use Amazon Prime or have accumulated music, videos, and are users of other Amazon services are going to be very excited by a new Amazon Kindle. The new Kindle is attractive in that it’s an e-reader that also does other stuff, whereas the iPad is positioned more as a general device.

In terms of specs, Amazon is apparently not attempting to build a technically superior tablet to the iPad. (A good move, since we’ve seen how well faster, more robust tablets with “access to the full web” have done versus the iPad.) Again, Amazon’s business is selling stuff.

The two are different devices, and the Amazon tablet is clearly not designed as an “iPad killer.” And whether or not Amazon can catch up to Apple’s 24 million iPads sold in 15 months, isn’t the right rubric for whether it’s been successful for Amazon.


Comments have been disabled for this post