Jeff Bezos Groks Tech Better Than Tech Companies

| The Back Page

A funny thing happened on the way to the online forum* the other day—it occurred to me that one of the lessons in the iPad vs. Kindle Fire vs. Everything Else battle is that Jeff Bezos groks technology more than all of the wannabe tech barons in Silicon Valley and China. Except Apple, of course.

Another way to put that, though, is that it took Jeff Bezos, online retailing magnate, to look at why and how Apple has been so successful with its iPad, and then use those lessons to figure out how to compete with the device.

Jeff Bezos & a literal presentation of the metaphorical lightbulb going off...

Jeff Bezos & a literal presentation of the metaphorical lightbulb going off…
Original image of Mr. Bezos by James Duncan Davison under Creative Commons

At the same time, the rest of the tech world, including a host of arrogant PC and phone makers in the U.S. and Asia, have not only been wrong about what it takes to compete with the iPad, they are singularly unequipped to do so even if they could pull their collective heads out of their collective nether regions.

Why is that? Why is it that tech barons of all shapes and sizes have failed so spectacularly in their efforts to make a tablet device that people will actually buy? There are many answers, of course. For instance, only Amazon can afford to dump its device on the market below cost.

Success

The Kindle Fire is a low-end, barely good-enough, cheap tablet made from cheap components. Already cheap, the device is less than half the price of the new iPad (or the then-current iPad 2 at the time of release), and Amazon is reportedly selling it for less than it costs to make, let alone the cost of R&D, sales, marketing, and support.

This is standard operating procedure for Amazon when it wants to enter a new market, and it’s a practice that I think will eventually land the company in hot water on antitrust concerns.

But that’s another column for another time.

Amazon can afford to dump the Kindle Fire because the device is a vehicle for selling Amazon’s digital content and physical goods, and for getting people hooked on Amazon Prime. This is the flip side of Apple’s business model, which is to provide content in order to sell hardware devices.

Baaaahhhh

PC firms like Dell, Asus, Acer, and HP can’t afford to sell their tablets at a loss because they don’t have content or other goods to sell. They are stuck in the mindset brought about by Microsoft’s success in the PC business. Decades of open licensing in the computer industry, where one company made the operating system and many companies made hardware, have trained these hardware companies to think like sheep.

They are sheep laden with braggadocio in spades, but they are sheep nonetheless.

Asus chairman Jonney Shih, for instance, promised that an unspecified “secret weapon” would lay waste to the iPad. That was in February of 2011. In August of 2011, Acer founder Stan Shih (in)accurately called the iPad a “flash in the pan” that was little more than a fad—speaking of proving that you aren’t fit to run a PC company, he also said that ultrabooks, including the MacBook Air, would fade away.

But wait, there’s more: another Acer numbnut, chairman J.T. Wang, said a year before that iPad would drop to 20 percent of the tablet market because open licensing always beats closed systems. How’s that working out for you, Mr. Wang?

Here in the States, Andy Lark, Dell’s global head of marketing for large enterprises and public organizations, said back in March of 2011 that iPad would fail in the enterprise market. He added that, “I couldn’t be happier that Apple has created a market and built up enthusiasm but longer term, open, capable and affordable will win, not closed, high price and proprietary.”

Seeing the theme?

Also in March of 2011, Mike Abramsky of RBC predicted that Android will dominate tablets by 2014. His reason? Open licensing wins. In July of that year, Nomura Equity Research said the same thing, but they used 90 pages to make themselves look like idiots—that’s no mean feat.

HP had its webOS TouchPad debacle—though that can not be laid at the feet of Meg Whitman, HP’s new CEO. Microsoft thinks the way to compete with iPad is to make tablets a weird pseudo-extension of the PC (even after I so generously gave the company my own secret recipe to tackle this market, Microsoft’s existing, strong footprint in the living room).

The end result of all this prognostication and smack talking? Apple all but owns the tablet market (roughly 60 percent share in the December quarter), with Amazon’s Kindle coming in a distant second (roughly 16.7 percent). I believe Apple increased that share during the March quarter, but those numbers haven’t been reported yet.

To repeat myself, why is that these formerly swaggering tech execs have been so consistently wrong about tablets, while Jeff Bezos was able to swoop in with his cheap Kindle Fire and capture more than 16 percent of the market in just half a quarter? The Kindle Fire didn’t even ship until the middle of November!

Eureka!

It’s because Jeff Bezos recognized the value of the whole widget and the importance of the ecosystem, while the tech world wants to keep insisting that the tablet is just another PC, where the benefits of open licensing will triumph.

I posit that reality dictates one of these parties—either Jeff Bezos or all of the other competitors—is wrong. The open licensing sheep have failed to make any real dent in Apple’s iPad sales, while the only competitor to embrace the whole widget and offer a unified ecosystem with a proprietary solution has.

The proof of that is in the pudding. A long time ago, I predicted that the tablet market will resemble the MP3 player market, with Apple dominating it. I believe that Apple’s user experience was creating demand for the iPad, not specs or breadth of choice in devices, the usual benefits of open licensing.

I’m ignoring price, because Apple is the price leader for tablets in every way except at the low end represented by the Kindle Fire.

Of Pavlov and his dogs…

It’s really not the fault of all those tech titans, though. Their collective training has left them ill equipped for fighting this particular war. They’ve been sucking at Michael Dell’s teat of cheaper, cheaper, cheaper, succored by the loving comfort of the maxim that no one ever got fired for buying Windows.

They haven’t had to think about software, about apps. They haven’t taken the time to think about how consumers are using their devices. They don’t control both the software and the hardware. There is nothing in the culture of any of these companies that even allows, let alone compels, them to say no to a product.

Think Differently

Jeff Bezos and Amazon, however, think differently about…well…everything.

First, a caveat: I personally have major concerns about the rush to the bottom that Amazon represents. I am concerned about what I see as a deleterious effect the company’s business model is having on brick and mortar retail stores and the danger of Amazon having too much power in the retail world. A world where I have a choice between Wal-mart and Amazon is an ugly, ugly thought.

That aside, there is no denying that Amazon has disrupted one retail segment after another, much the same way that Apple has disrupted markets with its own products and services. Jeff Bezos is not afraid to try unusual things, to offer products and services in a way that people want.

That’s just what he did with the Kindle Fire. Amazon had the cornerstones of content and content delivery in place and recognized that if it could develop a product where Amazon controlled the hardware and the software, the company could go toe to toe with Apple in the tablet space, helping to preserve its massive lead in digital books.

The retailer then hired developers, forked Android, put its own customized interface (without infringing on Apple’s patents in the process), tied that interface to its existing digital content and retail store front, attached it to Amazon Prime, and voilá!

When Amazon updates the Fire with better hardware, and maybe adds a larger device, the company is going to solidify its second place position, while the rest of the Android OEMs battle it out for the leavings.

There is no doubt that top notch devices like the Asus Transformer Prime and whatever Samsung finally makes of the Galaxy Note (or some other device that succeeds the Galaxy Tab) will appeal to some people, but they will never seriously challenge the iPad for market share. I don’t even think they can ever seriously challenge the Kindle Fire for share.

Same As It Ever Was

It’s fascinating to me that Mr. Bezos groks Apple’s secret sauce while no one in technology seems to be able to. As I already said, it wouldn’t matter if they can. We’re witnessing the endgame of the world of mediocrity brought to us by Microsoft’s open licensing model.

If only Google would accept that truth and go head-to-head with Apple utilizing a whole widget model leveraging its Motorola Mobility purchase, then we’d see the sparks fly in the tablet space. I don’t think that will happen, though, which means that a retail mogul will be the only party left to contest Apple’s utter domination of the tablet space.

* With apologies to Stephen Sondheim, Burt Shevelove, and Larry Gelbart.

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Comments

geek

The lack of objectivity made this article worthless.

The over use of the word cheap makes me think this was written by some 17 year old who just finished a 6 pack and remembered he had a paper due to his teacher.

BurmaYank

“The lack of objectivity made this article worthless.”

OK, maybe so, geek.

But why don’t you come back in twelve months, and let us know whether or not Bryan actually was as spot on in his hunches as he seems to be?  Particularly:

“When Amazon updates the Fire with better hardware, and maybe adds a larger device, the company is going to solidify its second place position, while the rest of the Android OEMs battle it out for the leavings.

There is no doubt that top notch devices like the Asus Transformer Prime and whatever Samsung finally makes of the Galaxy Note (or some other device that succeeds the Galaxy Tab) will appeal to some people, but they will never seriously challenge the iPad for market share. I don?t even think they can ever seriously challenge the Kindle Fire for share.”  (And BTW, I’ll also predict that they especially will never be capable of making it into the Enterprise, government and academic markets in any visible way, because Android’s Google base is just too risky a privacy/security threat for any institution to tolerate.)

klasseng

I’m not all that convinced that Amazon’s model is viable in the long run.

Apple: make great profit on great hardware; break even on content

Amazon: take a loss on inexpensive hardware; make slim margins on content.

wab95

I don’t know about the six pack, Bryan, but I could have sworn you were at least 18.

Very nice analysis. I think that you’ve ticked all the major boxes, while deploying some colourful imagery (although someone sucking at Michael Dell’s teats was one that I could do without).

I also think it is spot on analysis that, in times of test amidst uncertainty, such as entering the brave new world of tablet computers, people resort to the familiar, to what they know, as the operating mode of choice. This is not surprising. After all, if it served them well before, why should it not now?

The flaw in that reasoning lies in the fact that they never took time to understand why that aberration worked for them in the first place. It is a common fatal error in enterprise and the military (the two professions whose business is war) when combatants fail to study how their strategy and tactics, and more importantly, how those of their opponents, contributed to either victory or defeat.

That these OEMs will continue to use the open licensing model despite its lack of success is no less surprising than it is disappointing. That Amazon might recapitulate the race to the bottom model is equally unsurprising, as this too brought short term gains to the like of Dell. Rather what is passing strange is that none appear to to be paying attention to the change in tech educated consumer behaviour that clearly signals a shift in what drives sales, with exception of Apple, of course.

Then again, Apple was always the different thinking iconoclast.

Agee

“The over use of the word cheap?”
I’ve never liked the word ‘cheap’ to express low price, yet it’s being used frequently these days. ‘Cheap’ to me, suggests poor quality. Wouldn’t ‘lower price’ or ‘lower cost’ be more appropriate?

zewazir

OTOH, maybe use of the word “cheap” was INTENDED to imply lower quality.  After all, the Kindle Fire is a significantly lower quality device. Having tested a Kindle Fire for evaluation, and having a job which includes supporting iPads in the schools, I can first-hand attest to the claim that the Fire, though it does the job it was intended, is, definitively, a lower quality device.  (ie: cheap, not just lower price))

zewazir

I must agree with the analysis that the other makers, with their continuous and age-old harping on “open” vs. “closed”, are living in the past, and as such is a significant factor in their continued lack of ability to compete.

What they cannot grasp is the days of the 80s, when the majority of users wanted/needed the ability to customize their data processing to meet their individual and unique needs, are gone. Sure, there are still users out there with the need to customize their data processing. But they are, by far, no longer the majority. With the advent of ever-more portable data-processing devices, culminating in the smart phone, putting data processing literally in the hands of almost everyone walking down the streets of cities and towns across the world, the VAST majority of users simply need a device that works the basics, works them well, and in a manner that is easy to learn and use.  That is NOT world of open systems. It is a world of carefully integrated systems, where OS and hardware are deliberately and carefully matched. (ie: closed and proprietary) That is what people want and need in today’s data processing market, and that is what Apple, and in its own way, Amazon, are providing with their tablets - and their market share reflects this as true.

There is still and always will be, to some extent, a market for open systems, as there will always be those with unique needs, as well as techno-geeks who just can’t abide NOT tweaking their techno-toys. (You know who you are!)  But every day, that market, in comparison with the whole market, is shrinking to a niche market, where it was once the majority.

zewazir

Amazon: take a loss on inexpensive hardware; make slim margins on content.

Except Amazon’s margins on content are hardly “slim”.

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