Will Amazon's Developer Incentives Push Kindle Sales?

In an effort to keep users engaged with its Kindle Fire devices, Amazon.com (NASDAQ: AMZN  ) launched a new developer-incentive program today. While the new plan aims to give developers a better chance at making more money from Amazon, the company's main goal is to stay relevant with tablet users.

Playing for keeps
Let's be honest, Amazon is facing an uphill battle in the tablet space. Apple (NASDAQ: AAPL  )  has about 375,000 iPad-specific apps, while Amazon has about 100,000. Sure, numbers don't mean everything when it comes to the quality of apps, but it does mean something when a developer is considering where their app has the most potential for downloads.

Amazon's new developer-incentive program offers app creators premium placement in the Amazon and Kindle Fire app stores, 25% off of their first $2,000 spent on Amazon Web Services each year, enrollment in the Amazon Coins reward program, and 500,000 ad impressions on the Amazon Mobile Ad Network. The Amazon Coin reward program offers coins to customers to be used for other purchases when they download apps from Amazon's Developer Select program.

OK, so all that sounds pretty good, but why all the incentives?

To answer that question, let's take a look at where Amazon stands among other tablet vendors.

 
Source: IDC. 

OK, so it's obvious that we don't see Amazon anywhere on this IDC chart of the top worldwide tablet vendors from Q2 2012 to Q2 2013. Although Apple is losing ground, it's still the dominant tablet shipper, with Samsung coming in second. Amazon needs developers to make great apps for its Kindle Fires because the tablet space is crowded and it's not getting much attention.

But that's not the company's only concern.

Back in March, ABI Research projected that 14 billion tablet apps will be downloaded in 2013. Out of those apps, they expect 75% to come from iPads, 17% from Android tablets (not including Amazon's), and 4% from Amazon's tablets.

That's problematic for Amazon considering the company essentially doesn't make money off the sales of its devices. Amazon's business model for the Kindle Fires is to sell apps in the store and products from its site to make a profit from the devices.

When Amazon launched its latest Kindle Fires last month, CEO Jeff Bezos told NBC News, "We make money when people use our devices, not when they buy our devices." According to research firm RBC Capital Markets, Amazon sells four to five more books to Kindle owners compared to the average Amazon shopper. So, the upside is Kindle owners are buying more content from their Kindles, but Amazon needs them to stay engaged with their devices and more customers need to purchase them in order to expand that part of its business.

While you could argue Amazon doesn't care about being a top worldwide tablet vendor, the company does want to sell lots of Kindle Fires. Beefing up the quality of its apps with the new developer incentives may help do that, but it's still uncertain how much it will benefit the company. With the holiday season all but here, investors should keep an eye on how well consumers respond to the company's latest devices. But with Apple expected to announce an iPad refresh later this month, it may be difficult for Amazon to keep developers and consumers from wandering over to Apple's latest shiny devices.

Amazon's secret sauce
Whether the new incentives eventually push Kindle Fire sales up or not, it's hard to argue against Amazon's success. But do you know the major developments that could crush the company? The Motley Fool is sharing them in a free report titled, "5 Secrets to Amazon.com's Future." Inside, we outline critical information every Amazon investor must know, so click here now for your free report.


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