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

Early details about a forthcoming Amazon (s AMZN) tablet indicate the company could have a potentially successful Android (s goog) tablet on its hands. It’s not for sale yet, but many have been quick to label it the first legitimate iPad (s aapl) 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(s bks) 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 (s ms) 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.

18 Responses to “Why Amazon’s tablet can do well without being an iPad killer”

  1. If Amazon is doing so well, why don’t they report sales numbers??! A common practice since Apple started reporting billion-dollar quarters, for each device on in the market. It must be real embarrassing for these long-standing OEM’s to have to hide their stats. That’s the main reason why Apple doesn’t make or sell tablets, therefore they have NO competition!

  2. It may not be an “iPad” or even “iPad2” killer, but it is undoubtedly a direct and serious competitor to all future tablets. The next winner in tablets needs to target the sweet spot for tablets, which is what Amazon appears to be trying for. Look for what the largest number of people expect to be able to do on a tablet, significantly undercut the price of premium models, and make sure the user experience is decent. The current market leans so heavily towards premium devices that there is a huge opportunity.

  3. Nook Color Android-based tablet/eReader from Barnes & Noble has been on the market for over a year and sold millions of units at $250. Gives Flash, apps, videos, color magazines and ebooks with video inserts, and the best anti-glare coated screen on the market. Technology “leader” Amazon is finally catching up with the book store company by copying their device.

  4. Michael W. Perry

    Good analysis, but it misses one major weakness of the Amazon Kindle. Midway between mobile devices and tablets, it may not work well with generic Droid apps. Also, Amazon doesn’t have a good reputation for creating apps of its on for the existing Kindles or for encouraging others to do so. How can potential buyers be certain there’ll anything like the wealth of apps that run on iPads. Even a handful of worthwhile apps along with a much larger screen could justify paying that extra $250.

  5. Martin Turner

    Good strategy from Amazon. Why go head to head with the brand leader in a category you are not known for, when you can take the top spot in a category which is organically linked to your current brand. The way to win in this game is not to play — or, rather, to play a different game.

  6. The iPad is a game and media consumption device. Of course the Amazon Kindle Tablet will compete with the iPad. The difference is the business models: Amazon sells bits of content and they will sell the complementary tablet for cost; Apple sells aluminum for twice the price and complementary content for cost.

    • Games & Media? Sure but it’s a lot more than that. I’m sure those pilots in the cockpit aren’t playing Angry Birds or watching YouTube. The iPad is being used in many verticals so it’s a lot more than your narrow view of it.

  7. Chris Anderson

    I never expected Amazon would be able to (or willing to try to) deliver an iPad-level device.

    I think the Amazon tablet will certainly grow Amazon’s business and it will likely make progress toward competing with Barnes and Noble, while starting to look into Apple’s rear-view mirror. I think Apple’s business as a whole, however, has a lot more ‘legs’ with the iPad in fields such as education, manufacturing, science, engineering, art, and music. Amazon lacks the internal expertise to become a hardware and software innovator over night. Amazon is not in the business to become a hardware manufacturer – that observation is just spot on.

  8. Carl Hancock

    The other Android tablet makers should be very afraid of Amazon right now and with very good reason. The Amazon Kindle tablet isn’t going to be an iPad killer. It’s going to be an Android tablet killer.

    • If it’s not a threat to iPad, then it’s not a threat to regular Android tablets either. As the article says, they will be in pretty different product categories.

      But personally, I think it will affect both the iPad and Android tablets. There are a lot of people who have been pondering whether they should get a tablet (Android or iPad) or a Kindle. Now that choice is made for them – get the Kindle tablet, and you have “best of both worlds”.

      • Darryell Randle

        I don’t believe that is case. What is still missing from the still be officially announced Amazon Kindle is e-ink. I use the 3rd gen Kindle and the e-ink is one of main kicking points why the Kindle is successful. But I’m hearing that Amazon is working on an e-ink/tablet hybrid, whenever that happens, I believe Amazon’s tablet will be a threat to the iPad.

  9. Exactly. It’s a direct competitor to the Nook Color, which over took the Kindle in sales earlier this year. Amazon’s release of the Kindle has nothing to do with the iPad.. but instead the #2 selling tablet: The Nook Color.

    • Sure,they want an alternative to the Nook Color. But they wanted an alternative to the iPad first, which is why Techcrunch says they are using a tweaked Android 2.1 (1.5 years old).

      They know Apple is unpredictable and they probably assumed a long time ago that they will make policies such as the recent one where the content vendors have to give them 30% or they shouldn’t have the links to their stores in the app.

      Instead of letting Apple get the majority of tablet users who use Kindle, they want to own a big part of that market, too, so even if Apple forces them out of the App Store one day, or significantly weakens them there, like they just did with their new policy, they won’t be as affected by having their own (popular) devices.