Amazon and webOS: A Match Made in Heaven?

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Rumors of Hewlett-Packard (NYSE: HPQ  ) selling webOS are like cockroaches: They're pesky, persistent, and slightly morbid, you're never quite sure where they come from, and they're likely to survive a nuclear apocalypse.

Without a doubt, HP wants to cleanse its hands of its botched acquisition as soon as humanly possible. First there was Samsung. Then there was HTC. Now we have Amazon.com (Nasdaq: AMZN  ) making the rounds. How does this one's credibility stack up?

All in favor, say "Aye!"
With the unveiling of the Kindle Fire running Google (Nasdaq: GOOG  ) Android, eyes have oddly turned to Amazon as a potential webOS buyer as the newest entrant into the hot tablet market. VentureBeat exclusively reported that a "well-placed source" is saying that Amazon is the closest to closing a deal and is in serious negotiations.

An interesting tidbit is that Palm ex-CEO and current HP executive Jon Rubinstein has sat on Amazon's board since last December. Rubinstein has been a longtime champion of webOS, since it was created on his watch at Palm.

Upon the HP TouchPad's underwhelming debut, he attempted to bolster morale with an internal memo likening webOS to Apple's (Nasdaq: AAPL  ) early days with Mac OS X. A couple of weeks later, in an interview with Thisismynext discussing the growth of webOS, he mentioned that "Amazon would certainly make a great partner, because they have a lot of characteristics that would help them expand the webOS ecosystem." You can bet the house that if the two companies are meeting behind closed doors, he played an instrumental role in setting the stage.

A purchase of webOS would allow Amazon to differentiate the Kindle Fire from the slew of other Android tablets that are flooding the marketplace. It would also open up the possibility for a whole new line of tablets -- and some have even guessed smartphones and PCs, too -- when considering Amazon's dominant role in mobile retail and cloud computing.

All those opposed, say "Nay!"
Although there are some reasons that picking up webOS would make sense for Amazon, those reasons inevitably fall short when you start to pick them apart.

The "forked" version of Android found on the Kindle Fire has already been so heavily customized that it's hardly recognizable as Android, so the differentiation argument goes out the window. The Kindle Fire is already differentiated. Amazon has already made significant investments to do so, so changing course now to pursue a platform that's failed twice hardly sounds like a good idea. Unlike HP, Amazon has a clear strategic direction.

Android is technically free in terms of obtaining the source code. However, bringing an Android device into the market typically requires Google's blessing, and without it the prospects for success are severely hindered. For example, absent Big G's go-ahead, you lose standard features like Gmail, Google Maps, and the official Android Market. In many cases, you end up having to pay royalties to Microsoft (Nasdaq: MSFT  ) to boot.

The biggest downside there is access to the Android Market, as any device's success hinges on the liveliness of its app ecosystem. Oh, yeah! Amazon already has its own Android Appstore! The company has also built its own innovative mobile browser, Silk, and email app. The $199 price tag comes with cost constraints, and the Kindle Fire lacks 3G connectivity, so lacking a native maps app stings a little less. Besides, you could easily use the speedy browser to pull up Google Maps on the Web if you're really raw about it. At this point, Amazon needs nothing from Google, except maybe future open-sourced versions of the OS.

Amazon has accomplished something that no other Android device maker can do: It has hijacked Android from Google. It can do so because Amazon already has content and app ecosystems that no other OEM can replicate, which enables it to cut Google out of the loop. After such an accomplishment, why would Amazon suddenly switch to webOS? Just because director Rubinstein said so? His input here is heavily biased at best and strategically shortsighted at worst.

Amazon has already put oodles of time, talent, and money into building an Android foundation and has absolutely nothing vested in webOS other than Rubinstein's pride, which should be inconsequential to Amazon shareholders, myself included. There's even talk of a 10-inch cousin in the makings, possibly manufactured by iPad assembler Foxconn and sporting an NVIDIA (Nasdaq: NVDA  ) next-generation processor. Amazon would be targeting an early 2012 launch for the device, code-named "Hollywood."

Get out the way
Tough luck to all in favor, because I'm a naysayer on this one. The Android ball is rolling for Amazon now, and the Samsung Galaxy Tabs and Motorola Mobility (NYSE: MMI  ) Xooms of the world had better get out of the way unless they want to be crushed by the Kindle Fire.

What do you think? Do you say "aye" or "nay" to Amazon's buying webOS? Share your thoughts in the comments box below. While you're at it, add Amazon to your Watchlist and pick up a copy of this free report on how Amazon is changing retail.

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 Apple, Microsoft, and Google. Motley Fool newsletter services have recommended buying shares of Amazon.com, Apple, Microsoft, NVIDIA, and Google, creating bull call spread positions in Microsoft and Apple, and writing puts in NVIDIA. 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.


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  • Report this Comment On October 02, 2011, at 11:27 AM, darthque wrote:

    i dont think amazon purchasing webos is as crazy as it sounds. Google/android are currently vulnerable to patent lawsuits. Purchasing webos can be considered a simple way to avoid being caught in the crossfire. Furthermore, no one really knows the future of android. Its currently plagued by fragmentation and a weak presence in the Enterprise. A proprietary OS allows amazon to choose their own direction. It also allows them to move forward in integrating their product with their own cloud services, without fear of the aforementioned patent lawsuits.

  • Report this Comment On October 02, 2011, at 12:19 PM, TMFNewCow wrote:

    @darthque,

    I absolutely agree that continuing with Android will likely involve future patent lawsuits and licensing/royalty costs, but I think those costs are a small price to pay for the success that I think Amazon will realize with the OS.

    In my Foolish opinion, Amazon is already choosing their own direction with Android to an extent.

    -- Evan

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