Amazon, an Apple killer? (Benjamin)

Amazon, an Apple killer?:  The Impact of the Kindle Fire on the Tablet Industry

Benjamin

iPhones.  iPads.  Apple’s crowning and innovative products have made the company immensely valuable on the market recently, enabling their products to sell at premium prices to hungry customers everywhere. Charging upwards of $500 US for the iPad 2, Apple’s prices are obviously more expensive than most competing tablets and e-readers, a price easily demanded given the groundbreaking work of the company and the loyalty of their fans.  A question to ask then is: What happens when Apple as a dominant player in the tablet business is threatened?  Given the recent announcement of Amazon’s Kindle Fire, an impressively sophisticated tablet priced at just $199 US, the iPad may have it’s first major competitor.  This paper aims to analyze the impact of the Kindle Fire on the tablet industry in an attempt to determine whether Apple will be a major competitor to Amazon, or whether Amazon will dominate in the tablet market like it does everywhere else.

“The history of personal technology, like biological evolution, is littered with failed species . . . as better-adapted creatures take advantage of changing conditions to grab a foothold on the evolutionary ladder” (Waters & Nuttall, 2011, para. 1).  Proof of this ‘biological trend’ is already evident in alleged leaked information from Amazon’s information system.  This information revealed that more than a quarter million tablets have been pre-ordered, at a rate of more than 50,000 per day (Horn, 2011, para. 2).  At this rate, argues Leslie Horn (2011), “Amazon [is] on track to have the biggest tablet launch ever, bigger than both the launch of the original iPad and the iPad 2.  Given that other tablets like the Xoom and the Playbook only sold 250,000 tablets in the first month, it is clear that Apple is bound to face it first real competitor with Amazon, and why?   A good place to start is price.

Stan Beer (2011) argues that one of Apple’s greatest weaknesses is it’s dependency on hardware profits (para.4).  This theory for the high price of the iPad becomes troublesome compared to the much lower price of the Fire, a price so low that Amazon plans to make no profit off the hardware at all.  But this is not new for Amazon.  “Amazon is not in the hardware business and never has been” argues Beer (2011).  The loss will be made up instead from the large amount of online products it moves, from games to clothes, to apps etc. (Beer, 2011, para. 9).  To top it all off, given that the Fire will have optimized access to Amazon’s online store, and that it costs 40% of the price of the iPad, it’s hard to deny Amazon’s competitive edge.  Apple is predicted to lost a huge share to Amazon, unless it can formulate a plan to cut the price of the iPad in half.

These trends of drastic price cuts and profit sacrifices are not new to Amazon. ebooks, commonly priced at $9.99 (sometimes a little more or less) have caused mass panic in the traditional publishing industry.  Struggling to stay financially afloat against the pressure of Amazon (and other competitors) to maintain low ebook prices, many radical theories are being formulated.  Ewan Morrison (2011) posits “ebooks and e-publishing will mean the end of ‘the writer’ as a profession” (para. 2).  Many wonder whether publishers will be needed, as authors begin to self-publish manuscripts (no editors, publishers etc), offering “up their work for next to nothing or for free” (Morrison, 2011, para. 2).  This is because the low price that Amazon has set for ebooks in combination with the self-publishing capability has given authors incentives to skip the middle men and join the ‘long tail’ (Morrison, 2011).

This low cost is set by Amazon on purpose to help create a market for ebooks, thus enabling the conversion of a large portion of the bookselling business to zero-cost inventory (Maxwell, Amazon, Modern Book Markets, Pub 401).  “Amazon has built up a 90 percent share of the American e-book market, in part because it sells most new releases . . . at a heavily discounted standard price” (Rich & Stone, 2010, para. 11).  This leads one to think that the Fire is priced in this way as well: to punch a hole in Apple’s tablet market, thus carving one out for Amazon.

In addition to the massive price difference between the two, Amazon is presenting an arguably superior digital infrastructure with it’s move into the ‘cloud computing’ market.  With the aid of the new ‘Silk’ browser, Amazon aims to “display its access to digital content prominently on its home screen. And much of that content will come from Amazon” (Waters & Nuttall, 2011, para. 13).  This leads to the asymmetrical nature of Amazon compared to Apple.  While Apple sells content (books, movies, music etc) in order to sell devices, Amazon is contrastingly selling devices to sell content (Streitfeld, 2011, para. 11).  The set up of the Fire will be heavily integrated with Amazon content to advertise and sell to customers directly from the home screen of the Fire.  But is there an additional incentive behind this unique design?

It was discussed that although the Kindle Fire is powered by Google via Android, there is no visible sign of it on the tablet at all.  “No Google-branded e-mail, Web search, maps, anything” (Wortham, 2011, para. 6).  The point here, stated by Mr. Bezos, the CEO of Amazon himself, is for the Fire to be unique from all other Android tablets, an ‘unrecognizable-as-Android’ device (Wortham, 2011, para. 7).  And what does Apple think of this?  Chris Espinosa,a senior engineer at the company, believes Amazon is gobbling Google up too: “Fire isn’t a noun, it’s a verb, and it’s what Amazon has done in the targeted direction of Google” (Wortham, 2011, para. 15).

This is scary for Apple again, as Amazon is such a huge e-retailer, having “reported $24 billion in annual revenue . . . The Media/book category delivered . . . ¼ of their total revenue” in 2009 (Treanor, 2010, p. 119).  Adding this to observations by Shatzkin (2011) that suggest the doubling of ebook sales annually since 2007, it is clear that the Fire as an e-reader alone will put significant pressure on the iPad as ebook sales continue to rise (of which Amazon has the largest selection) (para. 12). This is because as we have learned in class, Amazon holds market dominance in the book industry, and in e-retailing for that matter, hosting a warehouse of over 18 million e-books, songs, television shows, movies etc. (Wortham & Streitfeld, 2011, para. 4).

I guess a major question to ask then is, will Apple truly be burned by Amazon?  There are many interesting counterarguments to this debate.  One opinion by Vince Martin (2011) expresses that “the Kindle Fire must be priced dramatically below the iPad, because it is an inferior product” (para. 6).  First, the Fire is half the size of the iPad, featuring a 7-inch screen compared to Apple’s 10-inch iPad.  Second, the Fire can only connect to the Internet over Wi-Fi networks, a defect that some predict will fiercely inhibit corporate adoption, as “86% of the Fortune 500 is either testing or deploying the iPad for business use”, in part because of its cellular wireless networks (Martin, 2011,  para. 7).  Third, with the introduction of Silk, Martin (2011) protests against the Fire’s capabilities from an application perspective, since Apple currently has over 100,000 iPad-specific apps (para. 8).  Last, Apple tends to avoid ‘first-run glitches’, a launch problem that tends to plague most other tech rollouts, not excluding Amazon (Martin, 2011, para. 8).  In conclusion, the critic assumes that “the Kindle Fire will be a lower-end product, sold at a low-end price, to consumers who can accept a limited version of the tablet” (Martin, 2011, para. 9).  This does not assume that the Fire will damage Apple’s share of the tablet market, only that it will provide a clearly inferior product at a lower price for those who cannot afford the better one.

Acer, in the wake of the Fire, remained calm and “retained its full year shipment target of 2 million to 2.5 million tablets” (Tan & Chen, 2011, para. 1).  While certainly aware of Amazon’s plausible capability to dominate the Android tablet camp, the Taiwanese tablet maker (world’s fourth largest PC vender) remain confident that with constant evolution, they can successfully compete against the e-retailing giant (Tan & Chen, 2011, paras. 6-8).

Shatzkin (2011) also expresses his confidence in Apple, stating as he did two years ago that “Amazon and Apple have different approaches to acquiring and pricing content offerings is the most important aspect of the battle between them to the book publishing community” (para. 5).  As reinforced above, Apple is in the business of selling devices that offer content that is controlled by Apple.  This is intended to create and reinforce the unique experiences of Apple products (Shatzkin, 2011, para. 4)  Amazon on the other hand, is solely using the Fire to sell content, and therefore is not bent on creating this same experience, as they are in the content business, not necessarily to sell tablets (Shatzkin, 2011, para. 4). Nonetheless, it is often hard to deny analytics.  The anticipation around the product is on almost every blog one reads.  “Amazon has lined up about four to five million screens for the Fire . . . a “fairly significant amount” says one analyst at IHS iSuppli (Barr, 2011, para. 8).

In conclusion, some observations remain fairly consistent.  First, there is a lot of buzz around Amazon’s new tablet as of yet, both good and bad.  Some believe the price of the new tablet to be a competitive edge against the iPad as a dominator in the tablet market.  Others believe this price difference to not matter, as the Kindle Fire is clearly an inferior product in many ways.  All critics seem to agree on one major theme however:  The global dominance of Amazon as an e-retailing giant, providing everything from movies, to shoes, to books galore.  With skyrocketing annual revenues, and constant economic growth in its already impressively established e-book market, it seems that there is no place that Amazon cannot grow as a business.  As Amazon has proven to succeed in so many other industries, is it so hard to consider them a major threat to Apple and their precious iPad?

References

Barr, A. (2011, October 1). Amazon CEO readies customers for tablet ‘sellout’. The Gazette. Retrieved from http://www.montrealgazette.com/business.

Beer, S. (2011, October 3). Apple forget about Samsung, worry about Amazon.  Retrieved October 3, 2011, from http://www.itwire.com/opinion-and-analysis/beerfiles/50141-appleforget-about-samsung-worry-about-amazon.

Horn, L. (2011, October 4). Will the Kindle Fire Outsell the iPad? Retrieved October 4, 2011, from http://www.pcmag.com/article2/0,2817,2394097,00.asp#fbid=FM_1zU3qwTv

Martin, V. (2011, September 29). The Kindle Fire Is Not An Apple Killer. Retrieved September 30, 2011, from http://seekingalpha.com/article/296768-the-kindle-fire-is-not-an-apple-killer.

Maxwell, J. (2011). Amazon (Modern Book Markets). Lecture notes from Pub 401 on http://tkbr.Ccsp.sfu.ca/401/outline/

Morrison, E. (2011, August 22).  Are Books Dead, and Can Authors Survive?  The Guardian. Retrieved online from http://www.guardian.co.uk

Rich, M., Stone, B. (2010, March 17). Amazon Threatens Publishers as Apple Looms. The NewYork Times. Retrieved online from http://www.nytimes.com

Shatzkin, M. (2011, October 2). An aspect of the Amazon-Apple battle the tech world doesn’t care much about. Retrieved October 2, 2011, from http://www.idealog.com/blog/

Shatzkin, M. (2011, September 25). Four years into the ebook revolution: things we know and Things we don’t know. Retrieved September 27, 2011, from http://www/idealog.com/blog/four-years-into-the-ebook-revolution-things-we-know-and-things-we-dont-know.

Streitfeld, D. (2011, September 25). Amazon Has High Hopes for Its iPad Competitor. The New York Times. Retrieved online from http://www.nytimes.com

Tan, J., Chen, K. (2011, October 1). Acer weighs effects of Fire on tablet business. Taipei Times. Retrieved online from http://www.taipeitimes.com.

Treanor, T. (2010, June 2). Amazon: Love Them? Hate Them? Let’s Follow the Money. Public Research Quarterly, 26, 119-128. Retrieved on September 24, 2011, from EBSCO database.

Waters, R., Nuttall, C. (2011, September 30). Amazon breathers Fire in tablet market.  Retrieved September 30, 2011, from http://www.ft.com/intl/cms/s/2/307f25e4-eb87-11e0-a576-00144feAb4ZmkYbAem.

Wortham, J. (2011, September 30). With Silk, Does Amazon Want a Slice of Google’s Pie? The New York Times. Retrieved online from http://bits.blogs.nytimes.com.

Wortham, J., Streitfeld, D. (2011, September 28). Amazon’s Tablet Leads to Its Store. The New York Times. Retrieved online from http://www.nytimes.com.