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Aug 29

Amazon TabletAs fall approaches so does, we’re told, the release of Amazon’s long-awaited tablet – or tablets. Little is known about the devices other than they will run the Android OS, will likely come in either 7” or 10” versions (or both), and be specially equipped to help the internet retailer sell eBooks, apps, and its many other physical and digital products.  But speculation about exactly what Amazon is up to with its tablet project is now in full swing.

Some analysts are projecting that the Amazon tablet could “disrupt Apple’s tablet dominance.”  Sounds nice, but we’ve heard that song before; so far all attempts at going up against the iPad have been met with limited – or nonexistent – success.  Or even embarrassing implosion.

So this could be just the latest iPad-killing bust.  But I hope the analysts are right.

The key to tablet success, it seems, has always been two-fold: mirroring many (or most) of the iPad features that defined modern tablets while significantly undercutting Apple’s prices.  The Motorola XOOM, for example, does just about everything the iPad does – and even some it doesn’t – but costs just as much or more than equivalent iPad models; as a result, the tablet has enjoyed lackluster sales.  But if Amazon can beat iPad pricing by an impressive amount, say $200 or more, while not sacrificing quality too much, the company stands a good chance of offering wallet-friendly counterweight to iPad’s pricey chic. 

Turning Loss Into Gain?

In a recent article at the PC Magazine web site, Tim Bajarin figured that Amazon’s new tablet might cost as much as $300 to build.  Assuming this number is accurate (for the moment), Amazon could sell the slate for little or no per-device profit, focusing instead on increasing sales of Android apps, movies, TV shows and eBooks, along with other physical items ordered via the tablet.  Or, as Bajarin suggests, Amazon could even lose a little on each unit – at least for the first and second batch – and make up losses by increasing overall sales. This idea may not seem the wisest from a pure dollars and cents standpoint, but it could horn Amazon into the tablet space, a move that would pay off in the coming months and years.

Hell, Amazon could even have limited advertising on the tablet to help generate revenue, as it does the $114 Kindle, though this seems less likely given the differences between an eReader and a tablet computer.

Special Positioning

Amazon is one of the few competitors that could afford to sacrifice profit purely from the sale of its hardware because it can use the device as a mechanism to generate new revenue by increasing profit from other purchases.   Motorola, Samsung, Vizio and LG can’t do that; they sell you (or a wireless carrier) the tablet, and that’s it.  Game over ‘til it’s time to upgrade to a newer device.

And Amazon has already proved its handheld acumen with the popular Kindle eReaders, which quickly dominated the electronic reader market and are now used by millions.  Add to that Amazon’s impressive library of digital books and newspapers, its streaming video service, music library, and Android app store – all tablet-friendly products – and there is great potential for using the tablet for sales rather than focusing on making money from its sale.

Hoping for the Best

As much as I love the iPad and iPad 2, I’ve been sad to see so many attempts at taking on the devices fail.  We need robust competition to push the tablets and their utility forward, and I believe Amazon can do it better than any company that’s yet made the attempt. Forrester Research agrees (or, I agree with them – whichever you prefer), because they estimate Amazon could sell as many as 5 million of its tablets in the last three months of 2011 alone, given the right price point.

HP’s deep TouchPad discounts proved that pricing trumps just about everything for users looking to add a tablet to their technology collection; they’re so frantic to get a cheap tablet that they’ll swipe the MasterCard even if the device will have limited support, few (if any apps) and a non-existent ecosystem.  When HP lowered the price of the 16GB TouchPad to $99, a tablet that had sold very poorly since release disappeared from dusty store shelves literally overnight.

In this game, price is everything.  Now we’ll just have to wait and see if Amazon has the vision to pull off the first non-Apple tablet success.  I sure hope so.

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