Amazon is best hope of a viable alternative to iPad
With or without its own tablet, Amazon can cause problems for Apple
Apple's iPad 2 went on sale last Friday, with few doubting that it would be a strong seller, since it has very few competitors. But, while there are the usual near-hysterical unit forecasts from bullish Apple fans, there are serious questions for the broader market. In the glut that is likely to appear as scores of vendors chase the tablet dream, how many vendors can make an impact, and which of them can challenge the iPad's lengthy headstart?
Meanwhile, Apple has its own showdown to contemplate, when it introduces new rules on in-app purchasing at the end of June. At that stage, it will require apps that offer content through an external store to also offer it through in-app purchasing. These apps will not be able to provide a link to their own external stores, and they must give Apple the same 30 per cent share that it makes from all App Store purchases.
In-app purchasing row
It is not clear why Apple has delayed enforcing the rule – clearly designed to protect its own revenues, but also its position as the primary point of contact for the user's mobile activity – until 30 June, since it already barred the Sony Reader app from its App Store last month on the basis of the same terms and conditions. The period of grace for other players is probably to give publishers time to rework their products, but may also be giving Apple itself time – to build up iPad 2 sales and strengthen its hand against those content providers which do not choose to comply quietly with its demands.
Chief among those, of course, is likely to be Amazon, which may also be the biggest threat to Apple's tablet lead should it launch hardware to go with its upcoming Android app store. The more of a headstart Apple can build up for iPad 2, the harder it will be for Amazon to play hardball over in-app purchasing come 1 July.
However, the retailer has the weight and self-interest to make trouble for Apple. Currently, its Kindle for iOS ereader app handles all ebook sales through Amazon's own Kindle web store, with the revenue divided only between Amazon and the publishers. The more successful Apple's tablets and apps are, the more difficult it will be for Amazon to walk away from its iOS platform – but it could whip up a dangerous level of consumer, developer and even regulatory opposition to the iPhone maker (though, as the proud owner of a closed ecosystem itself, it would need to tread carefully).
Amazon's hand would be even stronger if it was threatening Apple on other fronts, such as hardware. Though Amazon will never be primarily driven by hardware sales, its Kindle ereader has shown how it can increase overall content sales by offering an optimised experience to a particularly motivated (and high spending) segment of the population. What worked for booklovers could be extended to a strong apps and video experience on an Amazon Android tablet.
As many observers point out, Amazon would be the only one of the current crop of iPad challengers to offer a fully integrated content experience similar to Apple's. Apple's apparent success in keeping its huge market share during 2011 is not just because of its own headstart and strong brand, but because its rivals are coming to market with flawed strategies, argues research firm Forrester. It says Xoom and others are priced too high and depend on third parties for their content experience, giving Amazon an opportunity to address both issues.
Forrester's Sara Rotman Epps argues that the unpopularity of some of Apple's content rules would encourage providers to support Amazon as a counterweight. Also, Amazon would have greater price flexibility than firms like Motorola, since its primary motivation is to sell content and apps, not hardware – so it can sell a device cheaply and make up the difference with content sales.
Amazon is rumoured to be planning a scheme where it will give away free Kindle ereaders, for instance, to customers who commit to certain levels of ebook purchasing, newspaper subscriptions or the Amazon Prime service. And of course, Amazon has an established retail platform and experience that commands high levels of awareness and trust, unlike the other tablet makers. It could enhance this with its own tablet because it could take its own 30 per cent cut of in-app purchases. Forrester research found that 24 per cent of consumers would favour an Amazon tablet over other choices specifically because of its content assets in ebooks, music, video and games.
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