Why Amazon's Tablet Matters: It's Not a Computer. It's a Store.

The tech world is about to go into hype-tastic overdrive today with the expected (nay, inevitable) release of Amazon.com's (Nasdaq: AMZN  ) new tablet computer. If the predictions and previews are correct, the new device could be a big competitor to the market-defining Apple (Nasdaq: AAPL  ) iPad and cement Amazon as a major player in the computing game.

But this isn't really about the chunk of hardware that Amazon will be showing off. The reason Amazon's entry into the tablet market is such a big deal has much more to do with all the merchandise and media that Amazon can put in your hands, without having to pay Apple some pretty hefty tolls for the privilege.

I'm not saying that competition with Apple in the tablet market isn't a major piece of this story. Plenty of others have come out with me-too devices to follow the iPad, just as millions of people own smartphones from some other company. But none of those tablets has done much to dent the iPad's hold on the market. Amazon's move into tablets, however, is the only effort so far to fundamentally copy the Apple playbook, bringing a unified software, hardware, and application experience to the user.

That's hugely significant as a piece of business strategy, because it signals that one of the more innovative companies around is truly dumping the old Microsoft view of the world, where companies specialize in one area (like software, or retail) and get others to build around that brand. It's another vote -- a big one -- for Apple's approach, and if it catches on, you're going to see more movement in that direction. That's surely part of the reason why Google would pay billions for Motorola.

But something much more basic is going on here. Amazon isn't putting out tablet computers because it wants to be a computer-maker. It's doing so because Amazon is fundamentally a retailer, and the tablet is the new digital store.

"People leaning back on their sofas, buying things from Amazon, is another tailwind for our business that I'm very excited about," CEO Jeff Bezos said during this June's shareholder's meeting.

Let's look at some of the offerings that Amazon has in its quiver, either already announced or pretty solidly reported by journalists covering the beat, which would make sense to consume over a tablet:

Movies and TV: Amazon already has a Netflix competitor, Amazon Instant Video, that beams programs to your computer. Significantly, this has been offered as essentially a loss-leader for Amazon's Prime membership program, which previously was mostly about free shipping. That seems to foretell some kind of Prime bundling on a tablet too -- which would create a strong link between consuming media and browsing the main Amazon store.

Music: Amazon has for several years maintained an MP3 store online, where shoppers can get albums or individual songs. It recently paired that up with Cloud Player, an online music player that makes a significant improvement over Apple's iTunes by disconnecting music from individual computers or hard drives and making it accessible anywhere.

Storage: Paired with the music player was a bigger-picture "digital locker" service called Cloud Drive, that lets users store files -- photos, videos, songs, documents, you name it. It's a freemium model, with any Amazon customer getting 5GB free, and paid tiers that charge $1 per GB.

Books, Magazines, Newspapers: The Kindle, Amazon's original electronic-ink reader, is supposed to be sticking around even beyond any experiments with tablets -- Bezos has said as much. But the digital book downloads and subscriptions to other kinds of formerly printed media can easily come along to a new tablet. Reports this week have also indicated that magazine publishers are getting onboard with tablet-based subscriptions, different from Kindle versions, for the new tablet.

Apps: Amazon already has an app store for devices running Android, the mobile operating system owned by Google that is open to modifications by other companies. It's pretty well established by the overall news reporting so far that Amazon is going to be running an Android-based operating system on its new tablet. And Amazon's also fought Apple in court over the "app store" branding (and won).

Daily Deals: OK, so seemingly everyone has an offering in this sector right now. And Amazon's Groupon clone, Amazon Local, is actually powered by the leading Groupon clone, Living Social, in which Amazon is an investor. But if you've got a device that is aware of its location (as a tablet can be), then you've got a pretty good reason to chuck the daily email based subscription model for most daily deals services and pipe those suckers directly into people's hands.

Shopping: Uh, oh yeah. The whole point of Amazon's existence is to sell things to people. It's done remarkably well at that mission over the years, and a big part of that is its ability to collect lots of data on shoppers and lead them directly to things they're very likely to purchase. If the tablet is a new kind of store, then Amazon must have its own to control the data it needs to keep its position as the top online retailer.

Amazon Web Services: This is less about the consumer and more about the people who want access to them. But Amazon's cloud-computing hosting service powers a large share of the startups and application developers who build things for consumers to use on tablets. If for no other reason than brand familiarity, the AWS penetration among developers helps give Amazon another leg up in getting people to make things for its device.

As a retailer, Amazon has never previously cared what kind of computer a shopper was using to buy stuff. With Apple leading the way, the smartphone and tablet revolutions have changed all of that. Apple's soup-to-nuts control of the operating system, purchasing mechanism, delivery channel, and data dump suddenly became a threat to Amazon's business.

The device was no longer a way to enter Amazon's store -- with the iPad, the device itself becomes the store.

You can see this conflict in the way that Amazon fought to get around Apple's customary 30 percent cut by constructing its own Web-based Kindle app that worked within the device. But instead of playing whack-a-mole with Apple's terms of service, which it could change at any time, why not jump into the device game?

With reasonably affordable manufacturing partners available in Asia and some in-house expertise based on the success of the Kindle, there's really no good argument against it.

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Curt Woodward is senior editor at Xconomy Seattle. Reach me at cwoodward@xconomy.com. Get story feeds and more on Twitter @curtwoodward and Facebook on.fb.me/curtwoodward.

The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Amazon.com and Apple. Motley Fool newsletter services have recommended 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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