Amazon’s Unique Approach to the Tablet Biz
A recent business week article highlights the release of Amazon’s new tablet, the Kindle Fire, and Amazon’s novel approach to capturing profits from its new product (see Amazon the Company That Ate the World, ht Brett).
The article centers on how Amazon focuses less on extracting profits from the sale of the hardware (like Apple) in an attempt to capture profits from sales of complementary content.
Amazon sees the product as an opportunity to direct customers to its world of “content, commerce, and cloud computing.” Apple, by contrast, attempts to capture a majority of its profits from the sale of hardware – pricing the hardware high with third-party content providers appropriating much of the value of the sale of content.
Amazon has priced the Kindle Fire at $199, nearly half the cost of the cheapest iPad. While the Fire lacks some of the functionality of the iPad – think 3G connectivity and video chat – it claims to provide an easy to use interface that ties directly to Amazon’s content.
According to the article:
The stripped-down Fire is more of a sit-back-on-the-sofa-and-shop device. It crystallizes the difference between Apple, which tends to keep prices (and profit margins) high, and Amazon, which likes to start low and drive lower in an effort to knee-cap the competition. The tablet is symbolic of Amazon’s remarkable ability to adapt and reluctance to cede the future to anyone. If the Fire and its inevitable sequels are successful, they will add even more might to one of the fastest-growing retail operations the world has ever seen.
The Kindle Fire is designed to ensure that…purchases go to Amazon. The company has built a tablet-optimized shopping application, with simplified and streamlined pages but none of the clutter of the main website.
Analysts speculating on the new device widely pegged the Kindle Fire at $250 to $300…[but Amazon CEO Jeff] Bezos is able to go lower because he can make his profit on media content and with additional subscriptions to Amazon Prime—which then will drive additional purchases of toys, toasters, diapers, etc.
What I find most interesting about Amazon’s approach to the tablet space is its attempt to flip the business model on its head – making money from the content rather than the hardware. With the remarkable hardware price point afforded by its novel business model, the Amazon Fire represents, to date, the most credible threat to Apple’s dominance of the tablet space. Time will tell whether Amazon can make inroads in its attempt to challenge Apple head-to-head…