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business news3 Reasons Amazon Could Make the Only Android Tablet That Matters
By
Michael Comeau
Aug 30, 2011 9:15 am
Amazon is well-positioned to price its Android tablets way cheaper than anybody else, and instantly scoop up tons of market share. Here's how.
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Though Amazon’s experience in hardware has been limited to its Kindle eBook readers, it has a very good chance of making the only Android tablet that really matters.
The Current Tablet Landscape
You don’t have to be a rocket scientist to figure out that Apple’s (AAPL) iPad is the top dog in the tablet game. In fact, the only tablet that has even a remote chance of toppling the current iPad 2 model is the iPad 3.
The numbers back me up on this.
Research firm Strategy Analytics said that second-quarter tablet sales grew 330% year-over-year to 15.1 million units. Apple took 61% of the market, while Android held second place with 30% share.
Additionally, Apple competitors like Research In Motion (RIMM), Motorola (MOT), and Hewlett-Packard (HPQ) all failed to generate breakout hits with their respective high-profile tablet models, some of which were Android-powered.
So Does the Android Tablet Really Matter?
Android tablets as a category are a very big deal since they’re the only non-iPad game in town, but the individual models aren’t at all relevant.
There are a ton of Android tablets out right now, and it’s just too hard to tell them apart; any one could disappear and the buying public wouldn’t miss anything.
And that’s why nobody’s making big money in Android tablets. No tablet builder is reporting blowout quarterly earnings numbers on the back of its Android tablets, and no stock is going up because of them.
The real beneficiaries of Android-tablet growth have been the players levered to the guts inside those tablets, like ARM Holdings (ARMH), NVIDIA (NVDA), and SanDisk (SNDK), not the makers of the tablets themselves.
How Is Amazon Any Different?Amazon has three big things going for it:
1. Amazon.com!
Amazon.com is far and away the No. 1 retail website on the planet, seeing far more traffic than heavyweights like eBay (EBAY), Wal-Mart (WMT), and Best Buy (BBY). And that’s not a sign of maturity; Amazon’s sales are expected to grow a whopping 42% this year.
And what never leaves the home page of Amazon.com? The Amazon Kindle. That prime virtual real estate would almost certainly be shared with an Amazon Android tablet to help spur interest and sales.
And of course, as its own tablet-sales channel, Amazon can undercut the competition in price by foregoing a retail markup.
2. Amazon’s AppStore for Android
Quite uniquely, Amazon has its own Android app store, which would likely be put front and center on any Amazon-built tablet.
3. The Kindle eBook, Music, and Video Rental Stores.
Amazon also runs the the gigantic Kindle eBook store, and has growing digital-music and video businesses.
This gives Amazon the opportunity to use a line of Android tablets to feed even more people into these ancillary revenue channels.
And What Does That Mean?Add it up: Amazon is well-positioned to price its Android tablets way cheaper than anybody else, and instantly scoop up tons of market share. In a commodity market, cheap wins.
Even Motorola (MMI), which is being purchased by Google, won’t be able to undercut Amazon on price, because retailers will still have to mark those tablets up to make money on them. Amazon doesn’t have that problem because it will be both manufacturer and retailer.
But more importantly, Amazon could use those cheap tablets to help build its app and digital-media businesses. It would be foregoing some profit today to get people hooked into a proprietary network that can generate steady dollars over the long run.
And at the end of the day, that would make Amazon the maker of the only Android tablet that really matters.
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Positions in AAPL, SNDK
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