Has Amazon Priced Other Android Manufacturers out of the Tablet Market?

by FJ Torres

Short answer: No, they merely pose a tough question: how serious are you about android tablets? And the main target of the question is Google itself.Long answer: Some hardware-only companies will be squeezed out but others, the bigger and better-run ones, can find ways of trimming their cost structure (or beefing up their products' value proposition) to stay in the game. Others will stay because they see android tablets as a necessary complement to their smartphone business. Even if it is a small loss-leader operation.

Some, though, can afford to take Amazon on, head to head. Samsung, for example, makes their own CPUS, memory and displays and can "sell" them to themselves at cost, if need be. Amazon will aways have to pay a marked-up component price. And since competing does not mean price-matching there will still be room for "some" profit for vendors willing to sell at slightly higher than FIRE prices.

The real challenge is in the upfront design costs that need to be defrayed over volume. If Amazon grows their 22% share even slightly, say to 25-30%, by attacking price-conscious buyers, that leaves the "premium-price" market for the hardware-only vendors. Premium priced models are expected to be feature-rich, which adds to costs, and the market volume will be smaller than the value shoppers Amazon is appealing to so that path will squeeze profits, too. Worse, taking Android tablets into premium territory puts them squarely against Apple, Microsoft, and those same vendors' Windows tablets.

So, no; they won't *all* be squeezed out--particularly the ones with strong phone businesses--but a lot of mid-range vendors will be forced out and will have to try their luck with Windows RT and its very different value proposition. Which puts Google on the spot.

Hence, I suspect that the company that Amazon most seriously annoyed this week is Google, not Apple.

First, because they bought Motorola primarily for their patents. (They're already trying to shop around their cable STB business--good luck getting value for it, though.)

Second, Motorola was available because they were having problems with their cost structure--witness the layoffs. Building Nexus has been seen by some as a way to strengthen Motorola's phone side for a sale of the rest of the hardware business. Amazon's pressure on the generic vendors might now force them to *keep* Motorola--blowing their existing Android model out of the water--or "fire-sale" it to keep their credibility with the hardware vendors. Either way, they lose.

Third, Google is in the Android business as an ads and services play: every KF Amazon sells is a slice of that business that doesn't go to Google. And worse, they are eating away at their business with Google's own tech. (Now they know how Jobs felt about Android.)

Fourth, Amazon's forking and de-emphasis of Android in their marketting point the way for other players willing and able to imitate Amazon. Or at a minimum to partner with service providers (Rakuten must be feeling real good) that can chip in some kickbacks.

Fifth, at least some of the vendors will look at the Android ecosystem as a whole and decide that Windows RT with its Bundled-in MS apps makes more sense if they need to move up-market. Especially when the whole IP dark cloud and patent royalties are factored-in. It won't be a stampede but it will cut Android's momentum.

Sixth, the bigger Amazon gets *within* the Android world, the less control Google has. I strongly suspect Android 6.x will not be anywhere as freely licensed as current versions. Major fork ahead. At a minimum they need to create a value-add package beyond Play to counter Amazon's ecosystem and license it separately.

All-in-all, it is going to be e-x-p-e-n-s-i-v-e to keep up with Amazon and Google is going to have to bear the brunt of the software and services costs if they intend to keep Android a *unified* multi-vendor tablet platform.

In other words, to prevent the decimation of Android tablet vendors Top100 expects, Google is going to have to subsidize them instead of milking them.

Tough choices ahead in android tablet-land.

16 Comments on Has Amazon Priced Other Android Manufacturers out of the Tablet Market?

  1. Remember the Galaxy Tab when it first came out? Wasn’t it running somewhere around 700 dollars on an OS not even built for tablets. Now that was a money grab.

    My guess is, OEM’s may be afraid to R&D off Apple now, so Amazon is ripe for pickings(Come on, you don’t really think they are going to do their own R&D?). Seriously though, I’m glad Amazon has forced prices down. Google could compete by building their own hardware and getting it out there, at the cost of ticking off OEMS?

    Google has Motorola now, do they really even need OEM’s? I mean Google had to make their own Tablet just to compete with Kindle Fire. As you know, there are a lot of junk Android tablets out there, Google released one that finally gives their vision of a good Android tablet running on a smooth OS. They could take Motorola and start making premium products at Amazon prices.

    One thing is for sure, Amazon/Jeff shouted pretty loudly that they are a Tech company that actually does R&D. And besides the hardware, all the services seems to keep getting better and better.

    If Amazon was smart, it would put the word out for tablet App exclusives. Play store is seriously hurting on tablet Apps compared to iOS.

    • I don’t think the original Galaxy Tab cost more than $400. It was at most $500; there was no way it could cost more than the iPad.

      • I’m probably thinking of the prices for the 3g models? I Had to do some digging, but off contract it looks like those were around 600 and 400 with a 2 year contract from the carriers. I’m sure the wifi model was cheaper but I haven’t found a price for it. http://bit.ly/rfkxOg

        That was still a lot, even with 3g, considering it really was a blown up phone because of the OS it was running.

  2. Will certainly be interesting to see what the Fire HD and Nexus 7 look like alongside each other and what the experience is like.

    I think this is bad news for anyone making and selling the cheap Far East tablets on Amazon and lesser-known gadget sites. For such a small price difference folks are going to go for a known brand name.

    • Not necessarily. One feature cheap tablets have that these don’t is a micro SD slot. I haven’t considered buying a Nexus or Kindle Fire because of the lack of one. I don’t want to spend an extra 50 bucks for $5 worth of memory.

      Also, brand names aren’t that important on tablets anyway. They’re all built in the same Chinese factories.

      • True, but Barnes and Noble is up next, they are going to have to price their’s to compete now with Amazon and they usually have a SD slot. They have to, its the only thing they have to make them stand out from Amazon and hide they don’t have all the content Amazon does..

      • For the N7, there are ways of supplementing storage via a USB On The Go cable and connecting to USB sticks and even powered hard drives. No rooting needed with the right app at the Market. Check YouTube for the videos.

  3. There is a bigger disruption going on here than meets the casual eye.
    This isn’t just about Amazon dropping prices; it is about shifting where the consumer finds the value and monetizing it.
    The problem for Google and (some of) the OEMs is that Amazon is turning tablets into a services play, not a pure hardware play. In hardware-only business, you make’em, ship’em, and contract somebody to service’em if they break. They buy and you’re done. And they buy based on the checklist of features.
    In a services gadget business, the user expects that at least part of the value of the device comes from the services they can access with the device, not the features of the hardware. (Who care about the inner specs of a TiVo or a Roku? Or a plain old feature phone? As long as they do what they promise, *how* services devices work is largely irrelevant.) This is *dangerous* to the established gadget vendors. Disruptive.

    Think of the XBOX (so we don’t have to go to Kindle or iPad); it took Sony years and Nintendo a whole console generation to get it through their heads that people really were buying XBOXes to access the LIVE gaming network. That the matchmaking and social-gaming aspects weren’t just features but they were the *product*. That back-end services mattered. By then, MS had moved on to add more services and lately a horde of competing/complementary services and we’ve reached a point you can buy an XBOX and get your money’s worth out of it without ever playing a game on it or caring what the specs are.
    As long as the hardware is good enough to connect them to the desired services and offer a top-rate experience consumers don’t care that the core architecture is 7 years old; the buyers don’t care what the CPU and GPU architectures are like. All they care is they can get fast and pristine streaming video from Hulu or Vudu or NBCNEWS or Today. Or clear audio from Last.FM or I (Heart) Radio, or whatever.
    Services devices may use computer hardware but they dont sell like computers sell. And applying computer business models may lead to…issues…

    Android tablets aren’t anywhere close to that, but that is where Bezos sees things going. And with his track record, it is worth considering he may be right. Especially when he is helping te disruption along.

    When the value of a gadget lies in the services, the hardware only has to be good enough to get you the services. Having a quadcore laser-blasting slate means nothing if the consumer can’t even get to the video streaming store they want. Or if they have to jump through hoops istead of just turning it on and using it.

    Look to the Bezos presentation and his obscure comment about not wanting customers on an “upgrade treadmill”. It might have been just a hint that the original FIRE will be updated with most of the new software and services. Or it might be a warning to the industry that they intend to standardize on a design and ride it down the price curve for several years the way gaming consoles do, so that the current FireHD9 might be sold not just for a year and replaced by “hotter” hardware but stay around with minor tweaks and updates but at a lower price. Like they did with the original Fire. Imagine that $299 HD9 going for $249 next year. And $199 in 2014. Or the FireHD7 at $159 and the original Fire at $129 next year.
    Google’s business model is for others to ship the hardware, deal with the upgrade treadmill of having to constantly one-up each other to stay relevant, while *they* get the services revenue through Play and the search ads and what-not. Without *sharing* one red cent with the OEMs.

    Amazon playing the tablet game as a rogue android vendor with their own competing services is a “bad example” and a threat to Google because they are shifting the devices’ profits from an upfront lump sum to a continuing trickle. (Yes, as in the ereader market.) If the market shifts that way (not a given by any means, not yet) Google would be getting the bulk of the android tablet revenue and the OEMs little or nothing. If it goes that way, how soon before the OEMs start asking for a share of those revenues?

    Right now, OEMs bend over to carry Google’s PLAY app store because it adds value to the hardware. But what share of those sales do they get? What happens to Google’s android business when the major OEMs demand a slice of Play revenues from their devices? Worse, what if the carriers start demanding changes to the licensing terms?

    Even worse, what if Amazon shares some of their Appstore revenue with some of the OEMs or gets into the Phone business and offers carriers a sweeter deal? There are actual grumblings that carriers want a bigger share of Apple’s monster iPhone profits. And Apple isn’t even primarily a services player; they’re still primarily a vendor of high-margin hardware. And the carriers want some of that margin because their services revenue trickle isn’t trickling enough.

    And, of course, even in the staid PC world, the old balance between OEM and tech provider is shifting too. MS is getting into the flagship hardware game *and* beefing up their not-inconsiderable Windows services business. There is disruption to come there, too.

    For years we’ve heard the tech industry talk of moving into services but the meaning of it has always been nebulous. Now that they are actually doing it, though, it is starting to take shape. And the shape it is taking on is a familiar one to the ebook business: it is the long tail of long-term recurring sales. Products that can’t survive on short-term upfront revenue can do nicely with a long tail attached, whether they be gadgets or non-Bestseller midlister novels.

  4. Amazon can only own the tablet market if you make the assumption that the 300 million people living in the USofA are the only people who buy tablets. that the other 8 billion people (4 billion if you only count the ones who could afford a tablet) on planet Earth will never buy tablets. Unless, of course, Amazon finds a way to hook up with local content providers and merchants everywhere so as to avoid spreading the dreaded American culture 🙂

    I really must find some world -centric news outlets to follow.

  5. I’m looking forward to seeing the effect the Kindle Fire’s new lower price will have in the budget tablet market. Those $100 devices are not as attractive anymore, and as I discovered with an $80 Nextnbook tablet, it’s not possible to get much cheaper without sacrificing a significant amount of performance.

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