Amazon is best hope of a viable alternative to iPad

Original URL: https://www.theregister.com/2011/03/20/amazon_brightest_hope_of_viable_alternative_to_ipad/

With or without its own tablet, Amazon can cause problems for Apple

Posted in Networks, 20th March 2011 08:43 GMT

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.

Xoom's teething troubles

But for now, the fight against the iPad rests in other hands. The Motorola Xoom is just about the only product in the iPad's category that is actually on sale for comparison but, even though well reviewed, it has a high price tag and the justification of LTE connectivity may work only for a minority of buyers (although the Wi-Fi only version, at a more affordable $600, ships this week).

Jefferies analyst Peter Misek commented in a research note: "Xoom sales have been underwhelming. While marketing has just started we believe MMI will likely have to cut production if it already has not done so. We believe the device has been a bit buggy and did not meet the magic price point of $500. We believe management knows this and is hurrying development and production of lower cost tablets. Importantly we believe management will likely have to make the painful decision to accept little to no margin initially in order to match iPad 2's wholesale pricing."

Teething problems with Xoom are hardly unexpected – Apple often suffers these too, most famously with iPhone 4's "Antennagate". But bugs in the Motorola tablet highlight the downside of not having full control of one's platform, since most of them appear to come from crashes and other faults in the new tablet release of Android, Honeycomb – not from the hardware. Google's "perpetual beta" approach may be fine for free web services and software, but is unacceptable for expensive hardware – and even after Xoom's bugs are fixed, the brand will remain damaged for a while in consumer perception, especially given the premium price.

Other hopes of healthy competition to Apple mainly revolve around yet-to-emerge products such as the Samsung Galaxy Tab 10.1 – on past track record, Samsung may fiddle around with its product for a while longer, but will finally unleash a big hitter in terms of design and distribution clout. The RIM PlayBook and HP TouchPad are widely expected to be squeezed into their respective niches in the enterprise.

In a new survey from ChangeWave Research, conducted last month in the US only, 82 per cent of those planning to buy a tablet in the coming three months said they would choose an iPad model. By contrast, the next most popular choice, the Xoom gained 4 per cent of the votes (though at the time of the survey, it had only just gone on sale, so awareness may have risen since). The PlayBook and the first generation Galaxy Tab tied for third place at 3 per cent.

This contrasted with a previous survey, conducted in fall 2010, when the PlayBook was in second place with 8 per cent, even though it was not set to ship during the quarter. Its debut now looks set for 10 April but the public may have grown tired of waiting. The long gap between launch and availability has been criticised as a tactical error by RIM, contrasting with Apple's swift shipment of the iPad 2 in order to get to the shelves ahead of new competitors.

"It remains to be seen which of these tablet devices or other new entries will be able to successfully compete," said Paul Carton, ChangeWave's VP of research. "Each faces an uphill battle with the refreshed iPad 2 hitting the shelves on March 11."

Tablet forecasts

Despite warnings of a glut, many researchers remain bullish about tablet growth. Canalys is looking for 52 million units to ship this year, with Apple accounting for 75 per cent of these, or 39 million. Tablet sales will slow down PC upgrades in many markets, the firm thinks, saying: "The innovative user experience has captured the imagination of consumers, who are extending the life of their existing hardware while taking an interest in pads."

For every 10 tablets sold, five netbook or notebook sales will be lost in developed markets, it estimates, limiting notebook growth to 8 per cent year-on-year in 2011, and pushing netbooks into a decline of 13 per cent, to 34 million units. Many areas – especially the US, western Europe, China and Indonesia – will suffer from overstocked retail channels for mobile PCs, although the iPad's impact on emerging markets will remain minimal.

Another researcher, Parks Associates, forecasts that tablets with embedded 3G or 4G will exceed 68 million units by 2015, and will be the majority of a tablet total of 126 million at that point. In 2010, 29 per cent of the 16.5 million tablets sold had embedded 3G.

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