If you follow technology news then you would have found it difficult to avoid the news that Amazon is launching a new Android-based tablet called the Kindle Fire (which can be purchased here). It’s probably similar to Barnes & Noble’s Nook Color e-reader, but is $50 cheaper and more likely to be available globally as Amazon operates in overseas markets as well as the US. Whilst Amazon have said that the Kindle Fire will only be available in the US for now, it’s probably only a matter of time before it goes global.
The tablet market has been interesting because it’s absolutely dominated by Apple’s iPad range. Prior to the launch of the iPad a mere 18 months ago, tablet computers were pretty rare, and tended to run full desktop versions of Windows with a few extra bits to work with a touch screen. Apple used the success of the iPhone and iPod Touch to make the iPad, which was fundamentally the same as its smaller cousins but with a larger, higher resolution screen and a focus on apps that you would use on a desktop. And it’s sold over 20 million units, which is far better than any of its rivals.
Rival tablets – and I’m ignoring e-readers like the regular Kindle here – generally fall into three categories: those based on Android, like the Samsung Galaxy Tab series, RIM’s Blackberry Playbook and HP’s Touchpad. None of these have set the world on fire – sales of the Playbook have been less than half of its projections and production of the Touchpad has already ceased, with any remaining stock sold off at a massive discount.
But it’s the Touchpad and the iPad that I’m going to focus on initially: both demonstrate that there is a big demand for tablets. We know the iPad is really popular, but when the Touchpad was reduced down to around $99 the remaining stock flew off the shelves, whereas sales were very lacklustre when it was selling at full price. This is despite the Touchpad using an operating system that has until now only been used on one other device – the Palm Pre – and for which development has essentially ceased. In other words, there is a gap in the market for a cheap, affordable tablet computer. And this is where Amazon’s Kindle Fire comes in – at $199 it’s significantly cheaper than the iPad, and indeed many other tablets.
This does beg the question of why the makers of Android tablets – Samsung, Sony, Motorola, Acer and so on – haven’t been able to compete with Apple on price. Most of their tablets have been around the same price as the iPad, which has meant that there’s been no price advantage. This is very different to the mobile phone market, where most Android phones undercut the iPhone on price, and consequently Android now has a bigger market share. But remember that, with the exception of Sony, most Android manufacturers are only in the hardware business.
Apple and Amazon are both in the content business – Apple has its iTunes Store and takes a cut from sales of any paid-for apps on the iPad. Amazon has its Kindle store and its new App Store for Android devices, which again, it can take a cut from any sales. Samsung, HTC, LG and so on don’t make or sell content – their only profit come from selling handsets or tablets, and Google takes the cut for any apps bought in the Android Marketplace. In other words, Apple and Amazon can sell their devices cheaply because they will make money from further sales of e-books, music or apps once users have bought the device. (I exclude Sony because they own Sony Entertainment and could, theoretically, tie in content deals with their devices.) It’s the same as buying a cheap printer and then paying a fortune for ink cartridges, or paying £99 for a Nintendo Wii but paying £30 a pop for the games.
Another way that Apple and Amazon are able to keep costs down is to do with licensing the operating system. Apple obviously has its own iOS operating system, and Amazon will be using basic Android without any of Google’s apps – thus not having to pay any money to Google. But HTC and Samsung both license Google’s apps, and there will be licensing charges involved. Samsung is also paying patent royalties to Microsoft for its Android smartphones and tablets; I believe HTC is as well. As for Motorola, Google is in the process of buying it, which may give it chance to sell a cheaper tablet. But using its content store and avoiding paying license fees will help to keep Amazon’s Kindle Fire cheap.
What we don’t yet know is whether the Kindle Fire will allow third-party Android apps to be installed, or whether it will just offer a simple bookstore, reading app and web browser with no access to the wider underlying operating system. We do know that it lacks Google’s additions to Android and that this may preclude some apps from running. But Amazon has its own App Store for Android apps and it would surprise me somewhat if the Kindle Fire couldn’t use it – you’d think Amazon’s own Android device would be able to access its own app store.
This aside, I reckon the Kindle Fire will be very successful. It will take some of the iPad’s market share, but I can see the two co-existing as they aim for opposite ends of the market; the Kindle Fire will be a good cheap, basic tablet whereas the iPad is the all singing, all dancing tablet with a camera, microphone, 3G internet and more storage. But time will tell.