Can Amazon’s tidal wave sink Apple?

If rumours are to be believed, within the next month or two Amazon will be launching a new $250 tablet computer. It won’t be the first to come from the company, that crown was claimed long ago by the Kindle, but it has the potential to complete the transformation of Amazon from its origins as a simple bookseller to a cross-platform behemoth.

Since Apple introduced the iPad, may other companies have attempted to compete at a variety of price points. Even clothing retailer Next chipped in with their rebadged Elonex attempt, leading to possibly one of my favourite reviews ever:

As it happens, the Quick Start Guide is probably the best thing about this tablet. It explains in clear detail how to use the home screen, switch on security settings, set the date and time, and connect to a wireless network. In fact, there’s only one statement we’d disagree with: “Your new tablet is a great new way to experience the web”.

PC Pro, November 2010

More recently, HP discontinued (read: scrapped) their Touchpad range, and in a $99 firesale sold what amounted to low-powered hardware running an end-of-line operating system. They were snapped up, although I would hope that any discerning owner would be installing CyanogenMod as soon as humanly possible.

So why are Amazon trying, when history says they have no chance?

Writing in the Guardian, Charles Arthur gives two reasons why Amazon may succeed where other retailers have failed:

Amazon is a conduit to lots of content; and, just as importantly, it already has a way for you to buy content from it.

What’s not being mentioned is the sheer amount of control that Amazon have over the entire platform, in a way that even the likes of Google and Facebook can only dream of. The version of Android on their tablet won’t be a standard 2.3 Gingerbread or even a 3.x Honeycomb edition; rather, Amazon have apparently taken an earlier version of the (open source) operating system and added their own updates, including an Amazon App Store.

This means that when someone uses an Amazon tablet, they are linked to a significant number of services provided almost (but not entirely, as that would be verging on anti-trust) by Amazon themselves, including:

• Ebooks
• MP3 downloads
• Books
• Software
• Marketplace
• Books by self-published authors

In addition, I expect that Amazon will make the process of paying for downloaded applications significantly simpler, to the level experienced by iPad and iPhone users. As a result, I suspect that developers will be likely to start writing applications specifically for the Amazon tablet and, over time, even abandoning the Google market entirely. I wrote in a previous post:

I believe that smartphone sales are pushed, not exclusively but significantly, by the availability of apps

I’m going to revise this: I believe that an entire platform’s sales are pushed by the apps. And when the next version of your favourite application is only available on the $250 Amazon tablet or the $400 iPad rather than the $99 Noname Android, that narrows your options as to where to invest your hard-earned cash.

Of course, once you’ve decided to save your $150 for buying all those books, you are tied into Amazon long term. Want to buy a separate ebook reader and not lose your books? Buy an Amazon Kindle. Want to keep your current apps? Buy a new Amazon tablet.

The Amazon lock-in will then be complete.

With all this additional, almost guaranteed, revenue flowing in, it makes the price argument quite interesting. My expectation is that, following the Gilette business model (also used, more relevantly, by Microsoft and Sony in pricing their consoles) Amazon will sell their tablets as loss-leaders. If they can learn any lessons from HP, then it is simply that the lower they can get their price, the better. If I were designing their hardware, my starting point would be “enough power to run Angry Birds smoothly” and then work from there on making that happen as cheaply as possible.

A number of people have said recently, “There’s not a tablet market, there’s just an iPad market”. They were right at the time, they are right now, but they may be very wrong, very soon.