September 24-30: Kindle on Fire (Or Amazon, the Company That Consumed the World)
The headlines burned this week in breathless anticipation of Amazon's new tablet computer. Since January 2010 , Apple's iPad has dominated the tablet market. Apple's iPad has accounted for nearly 75 of tablet sales this year. iPads have become the device of choice on Capitol Hill , in doctors' offices , and even public libraries.
So some wondered if Amazon's device could be a true competitor to the iPad. They looked at Amazon's brand recognition, bevy of existing loyal Kindle e-reader owners, and Web-based e-commerce platform that includes one-click access to buying e-books, movies, digital music downloads, its own Android app store, and streaming media catalog. Tony Bradley in PCWorld wrote, "That adds up to Amazon being uniquely suited to go head-to-head with Apple in the tablet market and become a formidable competitor across the industry." Writing for paidContent.org, Ian Fogg said Amazon could only win by being different than Apple. He suggested observers look at these areas to judge the Kindle tablet:
- The extent to which the Kindle tablet’s business model is content-subsidized.
- The extent of the app catalogue available at launch and soon afterwards.
- The type of color screen used.
- Whether there is any business relationship with Google.
- The role for new visual eBook and magazine formats.
- Type of connectivity, 3G / WiFi, and route to market.
On September 28, Amazon made a big splash launching Kindle Fire -- a tablet with a 7-inch display and selling for $199 (compared with $499 for Apple’s cheapest iPad). The device, a souped-up version of the Kindle electronic-book reader, will run on Google’s Android software. While the Kindle Fire can vie with the iPad in access to media content, it lacks a camera, microphone or a connection to a 3G wireless network. It may not appeal to consumers who are drawn to the iPad’s larger screen and willing to pay a premium for added features such as video chat. Piper Jaffray's Gene Munster estimates that Amazon is probably losing $50 for every Fire tablet it sells. The subsidization, writes Michael Wolf for GigaOm , has created a mass-market alternative for a tablet. [Update: IHS iSuppli estimates it costs $209.63 for Amazon to make the Kindle Fire.]
Amazon also introduced touch-screen versions of its e-reader, to be called Kindle Touch. With that release, Amazon's use of advertising to subsidize hardware becomes more engrained. For example, the Kindle Touch with Special Offers costs only $99, but if you want one without ads it will cost $40 more. The new Kindle, without a touchscreen, costs $109 — that’s $30 more than the attractive $79 pricetag for the ad-subsidized model. Amazon started experimenting with advertising earlier this year, by discounting the Wi-Fi and 3G versions by $25 to $114 and $139, respectively. Amazon said earlier this month that both of those are already the bestselling Kindles, and that “customers report that they love the money-saving special offers.”
But why all the Headlines attention for the Amazon announcement this week? Bloomberg/BusinessWeek ran a long, interesting piece this week, "The Omnivore," that gets at why this all seems so important. Amazon sells millions of goods and services, from toys and high-definition televisions to server space for other Internet companies and digital reading devices for book lovers. Borders found it impossible to match Amazon’s selection and went out of business earlier this year. Best Buy has watched Amazon undercut it and commoditize whole product categories, and is now trying to shrink the square footage of its superstores. Wal-Mart Stores has struggled to match the ease and reliability of Amazon’s shipping network, and posted nine straight quarters of declining same-store sales. Web sites that have matched Amazon in selection, price, and customer serviceZappos, Diapers.comBezos has quickly acquired. As its rivals steadily asphyxiate, Amazon is ringing up 50 percent growth in quarterly revenues, and could reach $50 billion in sales this year. “Amazon is such a smart learning organization,” says Nancy F. Koehn, a professor of business administration at Harvard Business School. “It’s like a biological organism that through natural selection and adaptation just keeps learning and growing.”
Koehn thinks Amazon may be getting big enough for people to finally start considering the ramifications -- for towns, shopping centers, and jobs -- of a world dominated by online buying.
The Kindle Fire is designed to ensure that even more purchases go to Amazon. The company once saw spikes in traffic during the workday lunch hours. Now traffic is more evenly distributed as people pick up their tablets anytime of the week, buying the books and albums they see on television and making impulsive decisions about replacing their dishwashers. Consumers who browse retailers' websites using tablets are much more likely to pull the trigger on purchases than other online shoppers -- and they place bigger orders -- in some cases adding 10% to 20% more to the tab -- on average than shoppers using PCs or smartphones.
Amazon has built a tablet-optimized shopping application, with simplified and streamlined pages but none of the clutter of the main website. The app is pre-installed and sits at the bottom of the Fire’s main screen (users can get rid of it if they want). The device also comes with the enticement of a 30-day free trial of Amazon Prime, the company’s $79-a-year two-day delivery program that tends to convert members into Amazon addicts who triple or even quadruple the amount they spend on the site.
Kindle Fire also includes a new browser, called Silk, designed to speed up Web searches on Amazon's devices. CEO Jeff Bezos pitched it as a solution to the problem of pulling up content from today's increasingly complex Web pages, using as an example a typical CNN home page with its 53 static images, 39 dynamic images, 3 Flash files, 30 JavaScript files from 7 different domains, 29 HTML files and 7 CSS files. To get all this on the screen of a hand-held device without an unreasonable delay, Bezos and his engineers explained, Amazon has split the task in two: Some of the work is done by the tablet, but most is carried out in Amazon's giant server farms, where users' Web request are sent for pre-processing and, where possible, caching for future use.
Chris Espinosa says this'll mean that "Amazon will capture and control every Web transaction performed by Fire users. Every page they see, every link they follow, every click they make, every ad they see is going to be intermediated by one of the largest server farms on the planet. People who cringe at the data-mining implications of the Facebook Timeline ought to be just floored by the magnitude of Amazon's opportunity here."
On September 30, we also saw news that Amazon is likely to purchase WebOS from Hewlett-Packard. For Amazon, the idea would be to use WebOS as a basis for its new line of tablets -- rather than the forked version of Android that Amazon is currently using to power the Fire tablet. Perhaps more significantly, Amazon could also use the platform to power other products in the future, too -- such as smartphones and PCs, both areas where Amazon could naturally move, given its strong position in mobile retail already, plus its huge push to cloud computing with Amazon Web Services.
Amazon's tentacles deeply reach into all parts of the book industry, including its growing interest in inking deals with authors to publish some of the hit books Amazon sells. Booksellers and publishers are crying foul, saying they're being cut out of the chain by an aggressive Goliath. But some authors who have recently signed with Amazon Publishing say the company simply offered them a better, fairer deal than traditional publishers. And those Amazon deals are a boon for consumers, the authors say, because they bring earlier book releases and cheaper prices.
Magazine publishers see tremendous potential in the Fire and hope that the device can do for their business what the Kindle did for books: bring droves of new customers into a business that is having difficulty retaining its traditional print readers. With another player besides Apple – particularly one that is as large and influential with consumers as Amazon is – magazine companies could suddenly find they have a useful bargaining chip when it comes to negotiating with Apple. The Fire also allows publishers to start getting a higher price for their magazines. The magazine business has long sold subscriptions on the cheap – many for as little as a dollar an issue – while advertising subsidized much of their costs. But as much as it lamented the practice and tried to raise prices, it found consumers were resistant. Prices of many magazines on the Amazon Fire are set higher than print editions. And by offering buyers a newsstand, publishers can avoid having to worry that their magazines are getting lost in a jumble of other media.
Past devices, Amazon has been quietly taking bolder steps in another part of its business. It is trying to sell more advertisements for competing retailers, even promoting products that Amazon itself sells. This might seem a counterintuitive step in the hyper-competitive retail sector. But by accepting such ads, Amazon is turning itself into the ultimate destination site for online retail of any kind.
Although Amazon may fall off the agenda next week, there's another big product launch on the horizon -- on October 4, a computer company based in Cupertino (CA) is announcing some sort of upgrade or something. No, of course, Apple's press event to show off the iPhone 5 comes with its own breathless speculation -- the most interesting may be from Fast Company. Kit Eaton predicts the new device will again transform the cell phone -- this time into a smart personal assistant: think talking to your phone to set up an alarm or reminder, requesting GPS directions using voice alone. Basic interactivity in other words, but such that it renders the keyboard practically redundant. The device is also expected to interface with WolframAlpha -- Stephen Wolfram's "fact computer" that can intelligently understand data-specific questions and return meaningful suggestions.
Howard Lindzon wrote in Fast Company about all of this is just part of the relentless pace of innovation in the mobile industry. Mobile phones are "going to have as much RAM as you used to have in your laptop two years ago -- now in the phone," says angel investor Eghosa Omigui. But while hardware is improving exponentially, we seem to be lagging in our imagination and ways to use these ingenious, disruptive devices. Human interface is a fast growing topic and trendy investment theme. Last year Microsoft unveiled the Kinect accessory, turning their Xbox 360 game console into a gesture-driven device. The imaginations of engineers everywhere are running wild with possibilities about how we can better interact with our devices, but not fast enough for consumers.
The 2-year-old iPad is radically changing our perception of personal computing and it is becoming clear that tablets are destined to take over as the standard PC device. The massive computing and processing power surge will undoubtedly produce thousands of new products related to hardware and productivity, from solving the typing issue to improving battery life to even projecting video and images directly from your smartphone. It would be shortsighted to think that the opportunities in this mobile gold rush are limited just to apps.
On the policy side, Washington seems most focused on making sure mobile carriers have the spectrum they need to handle the data demands of their subscribers. To this end, the House Commerce Committee's Communications Subcommittee may mark-up a spectrum bill next week -- and many in the industry think spectrum auctions (yes, plural) are likely to be part of the debt-reducing recommendations of the Congressional "super committee" later this year.
Here's the agenda for next week. See you in the Headlines.