Why Would Amazon Release Yet Another iPad Rival?

Because it could provide an ideal way to sell digital content—and Amazon is in a better position than anyone to take on Apple.

As rumors circulate that Amazon is getting ready to release a tablet computer later this year, it’s tempting to wonder: why bother?

First off, Amazon will be going up against Apple, which has formidable expertise in developing, selling, and, above all, marketing high-end consumer electronics. Forrester predicts that the iPad will continue to dominate the already crowded tablet market throughout 2011, with over 80 percent of U.S. sales.

The rest of the tablet market is largely made up of devices running Google’s Android operating system. As Amazon is widely thought to be working on a device that also uses Android, this could make it tricky to distinguish its product from these other iPad wannabes. Besides, Amazon already offers a successful Kindle app for the iPad, and for Android. So why risk so much effort by entering the highly competitive tablet market at all?

According to some experts, a full tablet computer could prove vital as the material Amazon sells becomes increasingly digitized and delivered online.

“Why wouldn’t they?” says Rhoda Alexander, senior manager of monitor and tablet research at IHS iSuppli. “Having a piece of hardware that can carry their content is essential.”

With a library of not only eBooks but also video, audio, and software (Amazon already has an app store for Android), the e-commerce giant would be remiss to neglect the tablet industry, Alexander says.

That Amazon library gives it a leg up on most other tablet makers hoping to take on Apple. Amazon also has a strong, long-standing connection with online shoppers, which gives the company a slick way to sell both the device and associated content. The ongoing success of the Kindle has also given Amazon valuable experience in developing a content-centric device. And with a successful and visible brand in the Kindle, consumers may be more motivated to give the newcomer tablet a try.

Amazon Prime—a $79-a-year subscription service that gives members free shipping and unlimited access to a large digital video library—may attract buyers to the company’s tablet as well. “I think [Prime] could play a very big part in their decision,” says Alexander.

There may be yet another force at play in Amazon’s decision: textbooks. “The education world might play a big role,” says Alexander. Digital textbooks have been slow to emerge, but will almost certainly be in eBook format soon. Many textbooks require color images, so having a device that displays color images and multimedia could be important for Amazon.

The company might also offer the forthcoming tablet at a low price and make up for it by selling content later on. Amazon appears to have used this strategy for the Kindle. Amazon has also experimented with cheaper, ad-supported versions of the device, and it could take that approach with its tablet, offering a cheaper alternative to the iPad.

It’s unlikely the device will be offered anywhere close to cost, however. “There’s just too much risk involved,” says Alexander. Amazon can sell an ad-supported Kindle very cheaply because the single-purpose device is practically useless without further Amazon content. With tablets, that is not necessarily the case. People can—and do—use tablets for other activities. E-mail is still one of the most popular functions of a tablet, said Alexander. Offering the device very cheaply could prove financially dangerous if users did not buy enough content for it.

Some have speculated that Amazon might introduce a tablet with fewer features than other tablets, including the iPad, in order to keep the price low. But Alexander says this would not be a smart strategy. “Compromising quality is not a recipe for success with tablets,” she says, adding that Amazon is fully aware of this and is unlikely to enter into the venture without considering what will make a tablet successful.

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