Amazon will enter tablet market for the first time this fall. Their tablet will apparently have a 9-inch screen (comparable to the iPad’s 9.7-inch one) and will run an un-specified version of Android. It apparently won’t have a camera. And it won’t be designed by Amazon.
Instead, they’ll outsource both the design and manufacturing. In other words, it’s probably going to be cheap — at least in build quality, if not in price. Amazon built its business by losing money – it didn’t make a penny in profit for years and years – and we’ll be amazed if the entry level Kindle isn’t priced aggressively. That should in turn mean the current Kindle’s heading for another price drop.
The Kindle is the best-selling product on Amazon, and the company likely wants to keep pushing forward with it, but sporting a further reduced price tag. This would attract demand from the education and consumer market, while the more expensive and more powerful tablet would be able to take on the broader market outside of the e-book reader space. In addition to the Kindle ecosystem, the company has the Amazon Android App Store, its Cloud Drive service, and is in the meantime making sure to support its Kindle app on tablets.
Upstream component suppliers for tablets have been gearing up their preparation of needed parts and components for models to be launched in Q3 2011. Shipments are expected to top 21 million to 22 million units in the third quarter, compared to 13.5 million to 14.5 millions shipped in the second, according to industry source cited by DigiTimes.
The biggest vendor apart from Apple will be a new company to enter the tablet scene: Amazon. The online retailer giant supposedly has the most positive orders, with demand for touch panels likely to reach 2 million units for the August-September period, and shipments of tablet PCs to Amazon expected to reach 1 million to 1.2 million units (a conservative estimate). Still, this is nothing compared to Apple, which is expected to receive 14 million to 15 million iPads from Foxconn in the third quarter.
Why is Amazon outsourcing the entire development?
Likely because they wanted to get the tablet done as quickly as possible. Amazon is working on another version that they’re designing themselves, but that will not be ready until next year. So this first version will be a sort of placeholder until their own version is ready. The only way Amazon can compete with the iPad in any way is if it’s extremely cheap. Like $299 or less cheap. But can Amazon really make a 9-inch multi-touch screen color tablet for that cheap? Unless it’s an absolute piece of crap, that seems unlikely. There’s a reason why all other tablet manufacturers are having problems getting their tablets down to even the key $499 price point. Apple can do this because they have years of experience — and most importantly, component deals — thanks to the iPod, iPhone and other devices. Others do not. Amazon does not. Sure, they have the Kindle. But a full-fledged tablet is a whole different ballgame.
So either Amazon releases a tablet that is around the same price as the iPad — and potentially more expensive — or they sell each one at a huge loss. As they’ve proven with their digital content stores, such as the MP3 one, they’re willing to do this. But in hardware, they haven’t done this with the Kindle. Margins are thin, but the device still generates revenue. To beat the iPad in price, I have to believe that Amazon would have to take a large loss on each device sold.
But there are some positive signs like:
1. Amazon knows tablets
Amazon knows how to design tablets and what consumers value in tablets as it has sold millions of Kindles. Consider an Android version of Kindle a strategy of branching out. The company’s advantage is that it has experience other newbie tablet makers lack and can, as a result, avoid painful mistakes. The Kindle has been the only other tablet that sold out in a pre-order sale.
2. Existing upgrade path
Amazon has sold millions of Kindles. I have yet to come across a single Kindle user who isn’t happy with this eBook reader. Especially those who have bought a $139 or $189 version of the Kindle may be tempted to look into a $400 or $500 version of a color Kindle that keeps their book purchases, but delivers more memory, a much better web browsing experience, as well as the breadth of Android applications.
3. Unique content
Every Android tablet so far has been an iPad copycat. There is little reason to buy an expensive copycat if you can have the original for the same or less money. Plus, Apple has a very convincing app store, that tells future buyers that the iPad is the tablet they really want to buy. However, Amazon has an advantage over the iPad: Amazon has the default digital book store, which Apple still struggles to establish.