Is Amazon Eating Apple?

Himanshu Singh

Another week, another company releases a tablet, and the blog-o-sphere is once again buzzing with either “iPad Killer” or “Failed Tablet” articles.

Entering the battle this time is online mega retailer Amazon with their Kindle Fire. It is clear that Apple dominates… owns the tablet market.  Having sold 29 million iPads since the first release in early 2010, Apple controled 68% of the tablet market as of the second quarter of 2011 (IDC market research firm). Apple stands in one corner of the tablet ring while all competitors stand in the other.  So why does Amazon have a fighting chance where others like Samsung, Motorola, and RIM have failed to gain traction and others failed altogether (*cough* HP TouchPad *cough*)?

If there’s one thing the $99 TouchPad “fire sale” (pardon the pun) taught the industry is the massive demand for a sub-$200 tablet. People lined up for hours before store opening to get their hands on one, only to turn around and sell it on ebay for between $200-$300.  At only $199 the Amazon has considerably under cut every other major tablet manufacturer in terms of price. Based on the un-intentional market research conducted by HP, this price may be the sweet spot that makes the Fire the second true contender in the tablet arena. A mistake almost every other tablet manufacturers have made is the price.  Apple undoubtedly makes some of the most amazing products. So when faced with the option of purchasing an iPad or only slightly cheaper competitor product I, like many others, will pick the iPad each time.

Tech companies today are no longer solely focused on a single service or product. They are becoming increasingly vertically integrated by blurring the lines between manufacturing, retail, media, and software. What makes the iPad great isn’t just its beautiful design and simplicity of use, it’s the massive amount of content offered thru the iTunes store. Amazon is the first company truly capable of offering comparable services by integrating their web store offerings natively into their own hardware. The Fire will offer music through its Cloud Player, movies through the Instant Player, e-books and magazines through the Kindle App, and over 15K apps through it’s own regulated App Store.

It is this extensive ecosystem that might sway consumers with enough content and functionality to purchase the Kindle. That is exactly what Amazon is betting on.  They will need to capitalize on this new method of delivering their content if the Kindle Fire is to be a success. At a rate of only $199 it’s being speculated that Amazon will not be making much, if any, money from the actual device, rather they will be using the device as leverage to increase revenue from increased content sales and deals with publishers (perhaps even becoming more of a publisher themselves). This is in stark contrasts to Apple’s approach of the iTunes music store when the iPod was launched. By having a large music store they were hoping to leverage iTunes to increase iPod sales. Clearly iTunes has evolved into much more than just a music store now though.

Apple is still predominantly a hardware company. They are in the business of selling as many physical devices as they can, while supplementing those devices and their revenue with a host of other software and servicers.  Amazon is still hands-down an online retailer. Majority of their revenue comes from the sale of good and services from their online store, which are supplemented by some of their own hardware. The same way the original Kindle boosted the sale of their e-books and magazines, the Kindle Fire’s purpose is to increase the sales of their other offerings.

Arguably, Amazon is the first company since Apple to be able to back their hardware with a large amount of content and services. This, in the eyes of many, makes them capable of taking on the iPad. But because of their different approach and business model I don’t believe this will be the case. The Kindle Fire will be a huge success, but will appeal to a different audience than the iPad consumer. It, like the e-ink Kindle before it, will attract people interested in easy and quick access to Amazon’s products but want a few added extras like basic Internet access and email. After all, you can’t expect a smaller device with sub-par hardware, no 3G, camera, mic, or GPS to be able to compete with the iPad 2. At it’s price point the Kindle Fire will do what it’s designed to do better than expected, but the two devices are in two different weight classes. They will surely dominate their respective class, but not each other.