Monday, August 29, 2011

What's the Benefit of an Amazon Tablet

According to the Wall Street Journal, an "analyst" has proposed that Amazon could produce a low-cost tablet computer that could "disrupt a tablet market dominated by Apple".
Forrester Research analyst Sarah Rotman Epps wrote that while "Amazon taking on Apple is a bit like David taking on Goliath," if Amazon proves willing to sell its tablet relatively cheaply and leverage its brand and surplus of online content, it could make a significant mark.

Specifically, if Amazon prices the as-yet-undisclosed tablet at less than $300, the Seattle-based company could sell up to 5 million units in the fourth quarter of this year, the analyst wrote.
By the same token, any electronics manufacturer could produce a high quality, low price tablet computer and "disrupt" the tabloid market. I recognize that the key factor here is "Amazon" - the idea being that Amazon sells a ton of ebooks and manufactures the Kindle, and thus could in theory achieve economies of scale that would be difficult for others to achieve. Even a Photoshopped logo on a medium-sized tablet can create a certain level of excitement.
What we all want is a hybrid of the [Kindle and iPad] - a kindle that is a full blown tablet computer with a browser, apps, and an OS. It looks like Amazon is going to bring that to market this fall. I'm getting one for myself and one for the Gotham Gal. And I'm pretty sure my mom and dad are getting them too. It looks like a killer product.
Except what I hear from Kindle fans is, "It's small, light, easy to hold, and liquid ink is wonderful to read," versus the larger format, heavier iPad with its much greater functionality and color display. Why not read ebooks on your smart phone? Too small, and no liquid ink? To me it seems like the "hybrid" misses the mark: You lose the larger screen size and quality display of the tablet, but you also lose the liquid ink offered by the Kindle. (It is theoretically possible to create a display that incorporates both LCD and liquid ink, and I believe I saw an Apple patent application for such a display, but I have no reason to expect that the early generations of those screens will be available on entry model devices.)

If you end up with a table that's too small to be an effective tablet, too large to replace your cellular phone, needs to be carried in a purse or briefcase instead of a pocket, and is best used for reading ebooks, you're really talking about a Kindle. When you add color, apps and additional Internet functionality, you have something that's much more of a "Kindle plus" than an iPad-Kindle hybrid. That is to say, rather than appealing to people who might be choosing between a Kindle and an iPad, such a mid-sized, mid-functionality device seems aimed at people who want a device that falls between a smart phone and a tablet - something to buy in addition to or (for those who are willing to forego liquid ink) instead of a Kindle. I'm reminded of Steve Jobs' reaction, a while back, to rumors of a smaller-sized iPad. Once you use the iPad, I don't think you yearn for a smaller version. But people who use the Kindle seem eager to get a color version, or an Android model that runs a browser and their favorite apps. So the excitement isn't, "Apple might make a smaller iPad," but, "Amazon might sell a branded version of a small tablet that could have some of the functionality of an iPad." When phrased that way, it's not particularly exciting.

Something else to consider: Apple's control of its supply chain and manufacturing allows it to sell iPads at a highly competitive price while achieving significant profit margins. When it saw the first round of competitors' tablets on the horizon, it came out with the iPad 2 so that it would stay equal to or ahead of those products while it prepared to leapfrog them with the iPad 3. Amazon can afford to sell a smaller, inexpensive tablet at close to cost, but how would that help Amazon? Amazon will add functionality to the Kindle in order to maintain its position as the market-leading ebook reader, and it would no doubt try to boost its own app store through the next-generation Kindle or "hybrid" device, but it's difficult to imagine that a smaller sized tablet, sold near cost, is going to have a significant impact on the tablet market, and without the generation of profits for R&D it's difficult to see how any short-term market gain would be sustainable. If in fact Amazon reveals a significant market for smaller tablets, Steve Jobs' past dismissals aside, Apple will produce a product for that niche.

Here's something for Apple's competitors to consider: Do you want to take the path of pharmaceutical companies, trying to design products that do the same thing as your competitors' blockbuster drugs but which provide little additional benefit to patients, or do you want to be like the company whose products you're copying - and produce well-engineered, breakthrough, market leading products in your own right? If Amazon decides that its future Kindles should be mini-iPads, it would be abandoning the latter approach in favor of the former.

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