Does Amazon's Tablet Matter?

Amazon.com (Nasdaq: AMZN  ) has been a longtime favorite among stock pickers at The Motley Fool. In just the seventh issue of our flagship Stock Advisor service, co-founder David Gardner recommended the stock as a long-term winner. Since that selection in fall 2002, Amazon is up nearly 1,200%.

Of course, Amazon's a much different company today than it was in 2002. The company has moved beyond being an Internet retailer to areas like cloud-computing hosting, offering its Kindle e-reader, offering digital downloads.

Yesterday, The Wall Street Journal reported that the company is readying another product that'll move it away from its e-tailing roots: a tablet. While Amazon has proven its ability to sell a unique hardware product thanks to the Kindle's success, the Kindle was a differentiated product breaking new ground. In the tablet arena, there's a glut of tablets featuring Google's (Nasdaq: GOOG  ) operating system from companies like Dell (Nasdaq: DELL  ) , Motorola Mobility (NYSE: MMI  ) , Samsung, LG, and many others.

Will Amazon's media services and ability to promote its tablet across its website let the company break free from the Android pack? Do any Android tablets pose a threat to Apple's (Nasdaq: AAPL  ) iPad? I asked three Fool analysts to weigh in.

Fool contributor and Rule Breakers analyst Tim Beyers
Could Amazon's tablet take off? Sure. The price is likely to be enough of a discount off the iPad to make it worthwhile for some. Apple's holiday sales could take a hit as a result.

Yet I see this as a long shot. Why? Google controls the fate of this Kindle, and key app developers Netflix (Nasdaq: NFLX  ) and Hulu have shown little interest in creating software for the tablet edition of the Android OS. And that's despite research that says consumers want to use their tabs as TVs.

Yet I can't blame the developers. Google just released a new version of its Android Market app with support for movie rentals. From what I can tell, it'll be a great update -- for smartphone users. Android tablets have been shut out. Um, hello? Is anyone there? Tablets should be first to get movies since they offer a form factor more conducive to on-the-go viewing.

So while I like Amazon and the Kindle format, the Android partnership puts the new tab in unproven hands. Expect sales to suffer as a result.

Fool contributor Anders Bylund
So Amazon is taking the lessons learned from its market-leading Kindle e-reader and applying them to an Android tablet. I'd assume it to come with an Amazon-crafted user interface on top of whatever Android version lies underneath, making it recognizable, different, and presumably more user-friendly than most of its peers. That's kind of what Amazon does, after all.

That would be enough to make this the best-selling tablet not named iPad, ahead of the competing Streaks, Xooms, and Galaxy Tabs of the world, but I don't think Apple needs to shake in its boots just yet.

The Amazon brand name and distribution system is worth something and will ensure making this tablet a hit. However, Amazon has challenged Cupertino before in markets like online music sales and video rentals, and it's always come up short in spite of enjoying those consumer-facing advantages.

Will hardware retailing be a different story? I doubt it. Android tablets as a whole may eventually pass the almighty iPad line in sales, but in a fragmented manner -- not leaning on any particular product from a single manufacturer.

This tablet will be good or maybe even great for Amazon but no iPad-killer. You heard it here first.

Senior Stock Advisor analyst Bryan White
The Amazon tablet will likely be a device that allows consumers to walk around with the Amazon store in hand including digital books, music, and apps. At Stock Advisor, we expect the device to be priced in a similar fashion as the Kindle, where margins are low-to-non-existent but the value accrues from Amazon's digital-content store. We think Apple's iPad will remain the primary tablet of choice due to its superior design, functionality, and competing App Store, while Amazon's tablet has a great opportunity to attract the lower-end market and grab what little share other Android tablets have.

If you're looking to stay up to date on Amazon's entry into tablets, add the company or any other tablet rivals to our new free My Watchlist service. It's completely free and delivers up-to-date news and analysis on all your favorite stocks.

Eric Bleeker owns shares of no companies listed above. Tim Beyers and Anders Bylund own shares of Google. Tim Beyers owns shares of Apple, and Anders Bylund owns shares of Netflix as well. The Motley Fool owns shares of Google and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Google, Netflix, and Amazon.com. They have also recommended buying puts in Netflix and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 14, 2011, at 4:41 PM, imsodopey wrote:

    amazon, through its Kindle, has provided paid content for "free" without the need for a cell phone plan.

    it will be interesting to find out how much the perception may change should Amazon provide similar "free" access to its content/services via its tablet. Combine this with a drastically reduced price of its tablet, and Amazon may grab its share of the tablet market rather quickly.

    as a die-hard amazon fan and kindle owner, I am awaiting the release of amazon's tablet to determine which tablet I will buy.

  • Report this Comment On July 14, 2011, at 6:20 PM, 1984macman wrote:

    Amazon tablet = somewhat larger Nook = probable fail.

    Look, Apple did more than just create a new form factor. It created a new kind of computer, one that seamlessly interacts with all its other computers. That's its business, and it's very, very good at it.

    Amazon is going to try to match Apple with hardware designed by someone else and an operating system they don't control, and that won't have any sort of seamless connection to anything And they're going to be forced to depend on generic apps designed for that generic operating system. They need to stick to what they know and not try to pick a fight with someone that's just plain out of their league.

  • Report this Comment On July 14, 2011, at 7:25 PM, David369 wrote:

    Many more people than you might imagine do not need a gadget that interacts with all their other computers. Granted that might not be a large group but I bet it will still be a double digit number of the general population.

    Amazon did quite well with the Kindle because they specialized on a single use product for a specific part of the general population. Apple wasn't interested in that smaller market, still isn't and probable will never be. Apple makes the GREAT ZIZMOS that do it all and that have never really existed before...and uh, they cost like today's gold and really exceed what most people know how to use even half well but many people bought them even if they don't really know how to use them. Status symbols and neat toys that idiots stand in line for to pay more than the price if they just had the patience to wait 2-3 months.

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