Why Amazon is better positioned to win in the tablet world than hardware OEMs and what it means

Wednesday Jan 18, 2012 by Ted Chan - Founder and CEO, Upward Mobility / Noyo

Recently, I’ve been putting my strategist hat on with regards to tablet ecosystems, both as a management consultant for CSMG, and in deciding where to devote energy as a developer. 

In Michael Porter’s generic strategies, there are 3 effective ways to compete—cost, focus, and differentiation.  The tablet is a multi-purpose, broad use device, making it hard to utilize a focused/niche approach. 

That leaves differentiation and cost.  Apple has differentiation cornered, and likely will for many years.  On the cost front, there are really two ways to play the cost game in the tablet world. 

• One is cross-subsidization—selling hardware as a loss leader and making money on content sales. To do this effectively, you must own a content ecosystem.  Amazon is stronger than Barnes and Noble here, and they have a clear strategy around building out key components—music, streaming video, mobile browser, etc.
• The other way to play the cost game is to lead in volume.  Samsung, Motorola, and perhaps HTC can potentially do this but are chopping up Apple’s leftovers right now in the mid to high end.  With Apple so dominant at the high end in terms of capture volumes, and Amazon likely to drive down the price of pure hardware, Android OEMs are poorly positioned to play this game.

The Kindle Fire’s success over the holidays indicates you don’t have to be perfect from a user experience standpoint at that price point.  However, it’s hard to get a Bill of Materials on a tablet down far enough without significant scale, and that alone might not be enough.  This is especially the case if you need fat on the bone to share with retail distributors.  This is another advantage Amazon has.

I believe that the hardware OEMs will have to get out of their comfort zone and acquire the assets of a significant content ecosystem or get out of the tablet game.  This,  or they need Google to do it for them, which feels unlikely.  Google’s services are great, but they are available across all devices whether or not they are Android, and this isn’t going to change.  That means they don’t differentiate the device, and the profits don’t flow back to the OEM.

This discussion also leads me to an important conclusion for mobile developers everywhere—the Amazon App Store is relevant.  As a developer and a power consumer of devices, apps, and content, I hate islands.  However, for the right experience (Apple) or the right price (Amazon, perhaps), we’ve shown we’re willing to give in to them.

As a consumer, I appreciate the fact that, with my Amazon Prime account and my dirt cheap $199 Kindle Fire, I’ve got a nice device I can carry around with me to the gym, bang around and not feel too bad about, as opposed to my coddled iPad2.  Between my books and Instant Video, I have plenty of content on my Kindle.  Our Noyo Spanish language app, which is very graphics and sound heavy runs as well on the Kindle Fire as any other Android tablet.  Granted, there’s a lot of room for improvement with the browser and rendering, but it is compelling value, and there are a lot of potential value tablet buyers out there.

As a developer, I can’t help but note that Amazon App Store sales showed pretty significant progress after about four million Kindles were sold over the holidays.  This was probably a result of being one of the few fish in a small but growing pond, but that’s promising. 

Right now the Amazon App Store is doing better for me than the WP7 store, making it #3 in my eyes. Amazon’s done a decent job promoting the store.  There is a lot they could do in terms of making it easier for developers to manage customers, but it’s a solid user experience overall, and not that much work to get the app out there.  Especially for my new company, Noyo, which is tablet focused, it gets us exposure several million more customers. It seems Amazon is close to hitting a tipping point after which developers have to submit to their stores.  If they can outflank Android in app store user experience (where Android leaves a fair amount to be desired), they’ve got a chance to split the Android app pie and keep users moving to the Amazon island.

Ted Chan is Founder and CEO of Upward Moblity (www.upwardpro.com) and Noyo (www.noyo.com), two companies in the mobile education market.  He is also a management consultant in telecom, media, and technology at Boston-based CSMG (www.csmg-global.com).  You can also follow Ted on Twitter (@upwardmobility) by clicking here.

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