Amazon Will Corner the Android Tablet Market

Amazon.com (Nasdaq: AMZN  ) is no stranger to moats. Neither am I.

There has been some recent chatter that Amazon may be thinking about selling its long-rumored Android tablet at a loss, with some observers speculating as low as $249. That would set up a classic razor-blade model, as Amazon stands to more than make up any loss with digital-content sales.

Can Amazon succeed where all others are failing at dethroning Apple's (Nasdaq: AAPL  ) iPad?

The price is right
Price isn't the only thing that matters, as Hewlett-Packard (NYSE: HPQ  ) has demonstrated by slashing its TouchPad prices in an attempt to bolster weak sales. In fact, Amazon's MP3 Music Store already undercuts Apple's iTunes. For example, I recently picked up a digital copy of a Fitz and the Tantrums album, Pickin' Up the Pieces, for $7.99 at Amazon instead of buying it for $9.99 in iTunes -- 20% cheaper! Yet iTunes still dominates digital music downloads.

Apple can maintain its premium pricing because of its integration and focus on user experience. Among all potential tablet competitors, Amazon is the only one that can come close here. The Kindle's seamless integration has driven its wild success. It wasn't a coincidence when Amazon launched its Android Appstore. It was a foreshadowing.

This is also precisely what other tablet makers, such as Samsung and LG, lack. They drop out of the picture after the initial purchase is made, so they rely on the sales price for their profits. If Amazon voluntarily takes a loss on the tablet itself, it can recover the difference and then some on the apps you'll inevitably load up said device with.

Other Android OEMs simply cannot compete if the competition boils down to price alone -- especially since Amazon is also likely to offer better service through integration with its other offerings. If Amazon's tablet hits the market for $249, that's such a hefty discount that it's bound to turn some heads -- and open some wallets.

"I don't want a piece of you. I want the whole thing!"
Maybe Apple isn't the main target here. Instead, Amazon might be going after the Android portion of the broader tablet market. Sure, it wants the Android tablet market to grow at the expense of iPad sales, but what if it cornered the majority of the Android tablet market for itself? I think that sounds much more feasible than taking Apple on directly.

Google's (Nasdaq: GOOG  ) recent acquisition of Motorola Mobility (NYSE: MMI  ) throws the market a curve ball. If Motorola's Xoom can be heavily integrated into Google's own services and also be sold at a substantial discount, Amazon will have its work cut out for it.

Fool contributor Evan Niu owns shares of Apple and Amazon.com, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Google and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Amazon.com, and Google and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.


Read/Post Comments (5) | Recommend This Article (4)

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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 August 17, 2011, at 7:55 AM, jdmeck wrote:

    With all the money Apple has they can do the same if they have too.

  • Report this Comment On August 17, 2011, at 11:18 AM, chadscards1274 wrote:

    I don't know if either AMZN or GOOG really want to go in losing money on the hardware and assume that they will more then make it up on the software, music, videos side. If you look at the majority of Apps (with a few exceptions notably Angry Birds) they are free Apps that people use. My wife and I both have an iDevice and in the last few years we have downloaded a lot of great free Apps. The only Apps that cost money that we have are the Angry Birds trio. In addition a lot of our music comes from out existing collection and videos as well. I think it's a pretty big assumption to think that AMZN and GOOG can take a loss on each tablet in order to make it up in other areas.

    Bottom line the quality and depth of Apps that area available will drive the tablet market. Until GOOG in particular gets serious about creating more Apps for the Android market I think Apple is going to lead this party.

  • Report this Comment On August 17, 2011, at 1:00 PM, arendth wrote:

    I believe that you forgot a key ingredient to this story. I own a Mototola Xoom with the minimum 2gig/20 per month connection. Thats $240 per year and over $1200.00 for the 5 year life of the device. Amazon could offer whispernet for free! The only thing missing is that whispernet is too slow for streaming video. You could only watch video via WiFi. Would most consumers accept a free slow connection? I would and I am a certified geek! So I expect my Amazon stock to do quite well. In fact i just bought more.

  • Report this Comment On August 18, 2011, at 5:13 AM, madmofo wrote:

    While I'm hopeful that this is the case, taking a big loss on hardware would be a bit harder to swallow then say Sony on it's PS3, or Nintendo on it's 3DS. Gaming devices can be sold at a loss since a couple since they become useless without new games, and first party software can be a huge money maker. You need to sell a lot of 1 dollar apps to make up a loss, and while they do have other content to sell, books and games can be used on any device, and it will likely need to play music purchased elsewhere, so it's questionable as to whether you see a large uptake in non app sales. Still it would be great to see a serious iPad contender, and being the company that takes on Apple will likely earn it some positive PR, so maybe it's worth the loss in the long run.

  • Report this Comment On August 18, 2011, at 1:10 PM, Melaschasm wrote:

    From the descriptions of the Amazon tablet I have read, it sounds more like an improved Nook Color than an Ipad.

    A price point of $249 would seem to support my initial impression. Watch for some holiday sales on existing Kindle's this fall.

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