Apple's iOS 8 Could Give iTunes a Big Advantage Over Amazon.com's Kindle

Apple is about to add a new feature that could have some Amazon customers thinking twice.

Jun 10, 2014 at 12:46PM

One of the more interesting features coming to Apple's (NASDAQ:AAPL) iOS this fall is family sharing. With the release of iOS 8, families that own multiple Apple-made mobile devices will be able to share iTunes purchases across as many as six different accounts.

Books, music, movies and even some apps purchased by one family member will be accessible on all family members' devices, giving families that own Apple products an incentive to purchase their digital goods from Apple's storefront. Given Apple's dominance in the U.S., this poses an obvious and major risk to Amazon.com's (NASDAQ:AMZN) digital goods business.

You have to be crazy to buy an iBook
Baring the occasional sale, it's difficult to tell why anyone would (expect out of pure ignorance) purchase a digital book from Apple instead of Amazon.com. Apple's iBooks are shackled to Apple's ecosystem -- although they can be read on any iOS device or Mac, they can't be natively accessed on a Windows PC or Android device, let alone an e-ink reader.

Amazon.com's digital books, meanwhile, are available on virtually any platform, including Apple's. The Kindle app is offered on practically every operating system, and Amazon.com offers a variety of cheap e-readers like the Kindle Paperwhite. Buyers of Amazon.com's digital books get far more variety in their device choice, and if they decide to leave Apple's ecosystem at some point in the future, they won't lose their digital book collection.

Yet despite Amazon.com's obvious advantage, many people still choose to buy their digital books from Apple -- exact market share data is difficult to come by, but testimony from Apple's e-book price fixing trial last year put Apple's market share around 20% (Amazon.com likely sells around three times as much).

Apple gains an advantage over Amazon.com
But family sharing is, at least for the time being, a major advantage Apple will have over Amazon.com. Currently, Amazon.com offers nothing in the way of family sharing -- digital books can be shared, in theory, but only if one is willing to give out unfiltered access to their Amazon.com account (to be fair, some Kindle titles are able to be shared among friends and strangers, but the vast majority of the most popular titles are not).

At the same time, Amazon.com's Kindles can only be registered to one Amazon.com account at a time, making it difficult, if not impossible, to share digital books among families that may have multiple accounts.

The purpose of family sharing may have been to facilitate the creation of a family ecosystem -- families are encouraged to collectively choose Apple products, rather than a variety of mobile devices that may run several different operating systems.

But families that do own Apple products could be more likely to choose digital content from Apple -- the prospect of easily sharing a book may win out over the ability to access it from many different operating systems. The same could also be true for music, TV shows, and movies.

The importance of digital goods to Amazon.com's business
If Amazon.com does not counter with its own similar service, it could stand to lose significant market share for digital goods. Apple's mobile devices are in the minority globally, but are dominant in the U.S., with its iPhone accounting for 45% of smartphone sales and its iPad dominating in usage statistics like Web browsing.

Amazon.com sells a wide variety of general merchandise and other products, but its U.S. digital goods business is quite material -- North American media sales accounted for over 14% of Amazon.com's sales last quarter. Defending this business segment is likely the underlying motivation behind its push into set-top boxes and smartphones.

In that respect, iOS 8 stands as a major challenge to Amazon.com's business. If family sharing proves attractive, Apple's customers could choose iTunes when it comes time to purchase that next digital book, song or movie, much to Amazon.com's detriment.

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Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Apple. The Motley Fool owns shares of Amazon.com and 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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