Amazon’s Three Difficult Choices

  • Posted: 02 October 2011 03:06 AM #46

    If Oracle wins an Android injunction against Google, what would this mean for Kindle Fire?

         
  • Posted: 02 October 2011 03:23 AM #47

    iphoned - 02 October 2011 06:06 AM

    If Oracle wins an Android injunction against Google, what would this mean for Kindle Fire?

    Well, Oracle is seeking both one time damages and an injunction. The damages would be nice and all (billions of dollars), but the injunction would require Google to pay Oracle a licensing fee of between $5 to $15 for each new copy of Android issued. Since Google claims they are issuing 550,000 copies of the Android OS per day, we’re talking about a boatload of money and a continuing stream of income.

    Since Amazon has forked from Android and since they don’t belong to the OHA and will have nothing to do with Google’s Android from this point on, I guess that the Oracle suit won’t affect Amazon at all.

    However, the same cannot be said for Microsoft. Microsoft has been negotiating licensing fees with each individual Android handset maker. It’s estimated that Microsoft is currently garnering 444 million dollars a year from Android manufacturers. I see no reason why Microsoft wouldn’t aggressively pursue licensing fees from Amazon’s tablet as well.

    One of the reason’s why Amazon may pursue webOS.

         
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    Posted: 02 October 2011 10:18 AM #48

    FalKirk - 02 October 2011 06:23 AM
    iphoned - 02 October 2011 06:06 AM

    If Oracle wins an Android injunction against Google, what would this mean for Kindle Fire?

    Well, Oracle is seeking both one time damages and an injunction. The damages would be nice and all (billions of dollars), but the injunction would require Google to pay Oracle a licensing fee of between $5 to $15 for each new copy of Android issued. Since Google claims they are issuing 550,000 copies of the Android OS per day, we’re talking about a boatload of money and a continuing stream of income.

    Since Amazon has forked from Android and since they don’t belong to the OHA and will have nothing to do with Google’s Android from this point on, I guess that the Oracle suit won’t affect Amazon at all.

    However, the same cannot be said for Microsoft. Microsoft has been negotiating licensing fees with each individual Android handset maker. It’s estimated that Microsoft is currently garnering 444 million dollars a year from Android manufacturers. I see no reason why Microsoft wouldn’t aggressively pursue licensing fees from Amazon’s tablet as well.

    One of the reason’s why Amazon may pursue webOS.


    Why would Amazon be immune from an injunction on Android in the US or are you assuming Google signs a agreement with a liscencing fee and then passes that to manufactures.  I would assume Google adopts a new open source license which includes the royalties for commercial use.  Amazon would be using an offending product so it is a short trip back to the ITC for Oracle to sue Amazon if they are unwilling to pay.

         
  • Posted: 02 October 2011 11:14 AM #49

    pats - 02 October 2011 01:18 PM

    Why would Amazon be immune from an injunction on Android in the US or are you assuming Google signs a agreement with a liscencing fee and then passes that to manufactures.

    Yes, that’s exactly what I’m assuming. If Oracle gets an injunction and refuses to license the OS, then ALL Android manufacturers would immediately be out of business. Google could not afford to let that happen and it’s unlikely that Oracle is going to cut of its nose to spite its face by forgoing tens of billions of dollars in licensing fees.

    pats - 02 October 2011 01:18 PM

    I would assume Google adopts a new open source license which includes the royalties for commercial use.  Amazon would be using an offending product so it is a short trip back to the ITC for Oracle to sue Amazon if they are unwilling to pay.

    I’m assuming that Oracle can only sue Google as the maker of the the OS, otherwise Oracle would have had to have included all of the offending manufactures in the current suit. There is no way that the court is going to allow Oracle to sue Google and then, in the future, have separate suits against each of the individual manufacturers.

         
  • Posted: 02 October 2011 11:48 AM #50

    If the 7” form factor becomes popular, I think Apple will release a 7” iPod Touch at $199 or thereabouts.  There’s nothing really stopping them from doing so, aside from the public’s (for the most part) disinterest in anything other than the existing 10” form factor of the iPad.

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  • Posted: 02 October 2011 11:55 AM #51

    johnnyvn - 02 October 2011 02:48 PM

    If the 7” form factor becomes popular, I think Apple will release a 7” iPod Touch at $199 or thereabouts.  There’s nothing really stopping them from doing so, aside from the public’s (for the most part) disinterest in anything other than the existing 10” form factor of the iPad.

    On the surface, that seems to make a lot of sense, but I don’t think it will happen.

    First, if Apple were going to release a 7 inch tablet, I think they would have done so already.

    Second, Steve Jobs went WAY out of his way to explain why the 7 inch form factor would not work - as a full featured tablet. If you’ll recall, Jobs read a prepared statement at an earnings teleconference. I think he meant every word.

    Third, I don’t think the Amazon tablets are in the same category as the iPad. They are primarily e-book readers and media consumption devices. I don’t think that Apple wants to play in that market.

         
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    Posted: 02 October 2011 12:37 PM #52

    FalKirk - 02 October 2011 02:55 PM
    johnnyvn - 02 October 2011 02:48 PM

    If the 7” form factor becomes popular, I think Apple will release a 7” iPod Touch at $199 or thereabouts.  There’s nothing really stopping them from doing so, aside from the public’s (for the most part) disinterest in anything other than the existing 10” form factor of the iPad.

    On the surface, that seems to make a lot of sense, but I don’t think it will happen.

    First, if Apple were going to release a 7 inch tablet, I think they would have done so already.

    Second, Steve Jobs went WAY out of his way to explain why the 7 inch form factor would not work - as a full featured tablet. If you’ll recall, Jobs read a prepared statement at an earnings teleconference. I think he meant every word.

    Third, I don’t think the Amazon tablets are in the same category as the iPad. They are primarily e-book readers and media consumption devices. I don’t think that Apple wants to play in that market.

    I guess I’m torn about the 7” model.  It’s biggest weakness compared to a 4” screen of the rumored iPhone 5 or iPod Touch would be it doesn’t fit in your pocket.  All touch screens pretty much require two hands to operate and amazon clearly focused on media consumption in their presentation.  Is the 9.7” screen better for media consumption, you bet, but then the price is the real appeal of the Amazon offer.  Everyone like a good deal and at $200 if you want to replace your portable DVD player with a Kindle Fire on paper it looks like a pretty good match until you try to use your existing movie collection.  The average movie weighs in at about 2GB so with 8GB total and no slot you might get two, maybe three movies on the device once you add some music and books.  The $200 sure sounds sweet, but it will become a pain when your continually having to manage what content.  As far as the ebook reader part, I’ve read a couple books on the iPad and the use of an IPS LCD is no match for the E-Ink.  Battery life, outdoor readability, and screen resolution add up to a less then optimum device for consuming books.  Until those issues are overcome your much better off buying a dedicated E-reader.  Now if the folks at Pixel Qi ever get some traction with their screens we might have the a 7” e-reader that can morph into a tablet.

         
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    Posted: 02 October 2011 12:40 PM #53

    This means nothing, of course, but the Kindle Fire is the only tablet other than the IPad that I am looking forward to trying out and working with.

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  • Posted: 02 October 2011 12:46 PM #54

    pats - 02 October 2011 03:37 PM

    Is the 9.7” screen better for media consumption, you bet, but then the price is the real appeal of the Amazon offer.  Everyone like a good deal and at $200 if you want to replace your portable DVD player with a Kindle Fire on paper it looks like a pretty good match until you try to use your existing movie collection.  The average movie weighs in at about 2GB so with 8GB total and no slot you might get two, maybe three movies on the device once you add some music and books.  The $200 sure sounds sweet, but it will become a pain when your continually having to manage what content.  As far as the ebook reader part, I’ve read a couple books on the iPad and the use of an IPS LCD is no match for the E-Ink.  Battery life, outdoor readability, and screen resolution add up to a less then optimum device for consuming books.  Until those issues are overcome your much better off buying a dedicated E-reader

    PC = Oven
    iPad = Microwave
    Kindle = Toaster Oven

    The analogy isn’t perfect. Few people will only own a toaster oven, but many people will only own a Kindle.

         
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    Posted: 02 October 2011 01:55 PM #55

    FalKirk - 02 October 2011 06:05 AM
    Drew Bear - 02 October 2011 04:48 AM

    I think people “who weren’t going to buy a tablet anyway” may be drawn out by anything in the $199 price range. What if Samsung drops the price of the original Tab (7”) to $199? What about the Dell Streak 7 (1GHz dual-core Tegra processor, 1.3 megapixel front facing camera, 5 megapixel lens on the rear and 16GB of internal memory) or the PlayBook? The KFire may have stiff competition in a few weeks.

    I’m not so sure. Amazon is clearly working on the “give away the razors, make your money on the razor blades” model. It’s rumored that Amazon may be losing $50 per Kindle Fire sold. The other tablet makers are trying to make their money on the “razors” (their hardware). They don’t have any razor blades (content) to speak of. If they sell their tablets for $200, they’ll be out of the business in six months.

    I agree it’s not a sustainable business model for Samsung, Dell et al. I was specifically talking about this current quarter where there seems to be a glut of unsold non-iPads sitting in warehouses. Amazon may be able to sell 1-2 million KFires, but even that could be tough if others decide to drop prices to flush the channel of all these soon-to-be-obsoleted-by-Ice Cream Sandwich tablets.

    I had originally opined that Amazon couldn’t afford to use the razor/razor blade model because their margins on goods sold were razor (no pun intended) thin. But its clear that Amazon is all in. Even if I was right - and I’m not sure I was - Amazon could hang in there for years before they bled enough red ink to make them reconsider their position in the tablet space.

    I’m not finished listening to the Siracusa podcast, but he emphasized something Dediu wrote about regarding the razor blade model: it takes years to make money with this model. In other words, Amazon needs consumers to use the KFire to buy stuff for many years in order to make profit.

    Amazon must pursue this model in the long-term, but I don’t see how that translates to a product or experience that will compete directly with Apple. I think earlier you pointed out that they are targeting two separate markets. I agree. It’s like Dell targeting the sub-$500 laptop market while Apple concentrates on the super-$999 market.

    Drew Bear - 02 October 2011 04:48 AM

    My impression was that he was talking about the Amazon Silk browser rather than the Fire.

    Agreed. I’ll be very interested in what Dediu has to say on that matter.

    I couldn’t follow all the tech details Siracusa gave about Silk, but it sounds great. Who doesn’t want a faster browsing experience that uses less of your mobile data cap?

    Here again, I don’t think this competes directly with Apple’s goals. Just as Apple doesn’t care if we buy ebooks or music through Amazon or watch movies via Netflix, they don’t care if you browse the web through another browser. They just want you to do all those things on their devices.

    The more I think about the Kindle Fire, the less concerned I am that it will affect Apple in any significant way. But it will be interesting to see how it continues to shake up the non-iPad market in the following weeks.

         
  • Posted: 02 October 2011 02:29 PM #56

    For Amazon what is the cost to acquire a new customer?

    How many new tablet/ catalogs are going to existing customers?

    Does this mean each large retailer must launch their own tablet portal to remain competitive?

    If you’ve an iPad you can still go anywhere.

         
  • Posted: 02 October 2011 03:25 PM #57

    redge - 28 September 2011 04:56 PM

    Bloomberg in-depth article on the Kindle Fire: http://www.bloomberg.com/news/2011-09-28/bezos-portrays-pocket-sized-fire-as-service-not-tablet-in-ipad-challenge.html Bezos demonstrated the device to the author in what was evidently a private interview.

    The article clearly articulates that the battle will be between ecosystems. Developing an OS, or manufacturing hardware, or even selling content by themselves is a losing proposition.

    So now strategies of ecosystem development, and more importantly: purpose, are the differentiators.

    Apple’s strategy is to provide content as a way to sell hardware.
    Amazon’s strategy seems to be to provide hardware in order to sell content.

    Both believe that full integration of hardware, software and content delivery systems is essential to succeed.

    So what will be the winning formula?  The best hardware/user experience, or the best/easiest to access content?  I think the approaches are essentially equal, execution will be key, and in this Amazon is a formidable competitor.

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    Posted: 02 October 2011 03:32 PM #58

    One approach makes tons of money up front, does it now and will continue to do so in the future.

    One guess which one it is.

    It’s exhausting to do so but I continue to make clear that I like Amazon as a company.  I buy stuff from them!  It’s just that in terms of strategy, Apple’s is better AND more sustainable.  There’s enough room for multiple successful smartphone and tablet vendors.  But I think the best approach is one that can cash flow your operations without having to buy your way into follow-up business.  Again, not to say Amazon’s approach can’t work.  But their margins are already tiny.  You need Amazon tablet buyers to buy more than they were already buying at a higher margin, for the tablet purchase to be profitable to Amazon when the tablet goes up to that great big recycling heap in the sky 2 years from now.

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  • Posted: 02 October 2011 05:26 PM #59

    Mav - 02 October 2011 06:32 PM

    One approach makes tons of money up front, does it now and will continue to do so in the future.

    One guess which one it is.

    It’s exhausting to do so but I continue to make clear that I like Amazon as a company.  I buy stuff from them!  It’s just that in terms of strategy, Apple’s is better AND more sustainable.  There’s enough room for multiple successful smartphone and tablet vendors.  But I think the best approach is one that can cash flow your operations without having to buy your way into follow-up business.  Again, not to say Amazon’s approach can’t work.  But their margins are already tiny.  You need Amazon tablet buyers to buy more than they were already buying at a higher margin, for the tablet purchase to be profitable to Amazon when the tablet goes up to that great big recycling heap in the sky 2 years from now.

    Excellent observations.  A secondary ecosystem, that buyers of Apple products can access, will only benefit Apple.  Whereas buyers of Amazon’s hardware can’t access Apple’s ecosystem.  So no matter what Amazon’s hardware can do, it will be the consumer’s preference for form factor (7” vs 10”) that will make the difference.

    This puts Amazon at a disadvantage because of 10” hardware production costs, and how much Amazon can afford to lose (buying customers) with a limited feature/utility device.

    This is not to say that Amazon won’t sell many of its tablet products (the market is tiered with many price and utility points), but they won’t sell enough to become a threat to Apple, especially considering the the iPad is suitable for enterprise, education and consumer solutions.  Nobody has suggested that the ‘Fire’ has such utility.

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  • Posted: 02 October 2011 07:31 PM #60

    Drew Bear - 02 October 2011 04:55 PM

    I was specifically talking about this current quarter where there seems to be a glut of unsold non-iPads sitting in warehouses. Amazon may be able to sell 1-2 million KFires, but even that could be tough if others decide to drop prices to flush the channel of all these soon-to-be-obsoleted-by-Ice Cream Sandwich tablets.

    I don’t think the Kindle Fire comes out until mid-November. I’m sure Amazon announced the device now because they wanted to freeze the market. Still, I think the late debut will cost Amazon lots and lots of holiday sales.

    Despite the late debut, your point about the sales of other tablets is a good one. Non-iPad tablets are really suffering. Their sales appear to be sliding instead of accelerating. They stuffed the channels and now there’s nowhere for new tablets to go, so even the “sell in” numbers will be low this quarter and next.

    Drew Bear - 02 October 2011 04:55 PM

    I’m not finished listening to the Siracusa podcast, but he emphasized something Dediu wrote about regarding the razor blade model: it takes years to make money with this model. In other words, Amazon needs consumers to use the KFire to buy stuff for many years in order to make profit.

    Right. I may bore people to death, but I think I’m going to post a parsing of Dediu’s original thoughts on the subject. I think understanding this is important because it affects both Amazon and Apple’s tablet efforts.

    Drew Bear - 02 October 2011 04:55 PM

    Amazon must pursue this model in the long-term, but I don’t see how that translates to a product or experience that will compete directly with Apple. I think earlier you pointed out that they are targeting two separate markets. I agree. It’s like Dell targeting the sub-$500 laptop market while Apple concentrates on the super-$999 market.

    Agreed. However, I think it may be more like Dell targeting the sub $500 netbook market and Apple concentrating on the super $999 MacBook Air. To carry the analogy one step further, while there are PCs that are priced lower than the MacBook Air, there are no “Ultrabooks” priced lower than the MacBook Air. Similarly, there are no full feature tablets price lower than the iPad. The Kindle Fire is not a low priced iPad. The Kindle Fire is a low priced Nook.

    Drew Bear - 02 October 2011 04:55 PM

    I couldn’t follow all the tech details Siracusa gave about Silk…

    Oh my heavens, I couldn’t even begin to follow what he was saying.

    Hang in there. Towards the end of the podcast, the analysis shifts from the technical aspects of the Kindle to the strategic impact of the Kindle.

    Drew Bear - 02 October 2011 04:55 PM

    ..but it sounds great. Who doesn’t want a faster browsing experience that uses less of your mobile data cap?

    Totally agree.

    Drew Bear - 02 October 2011 04:55 PM

    Here again, I don’t think this competes directly with Apple’s goals. Just as Apple doesn’t care if we buy ebooks or music through Amazon or watch movies via Netflix, they don’t care if you browse the web through another browser. They just want you to do all those things on their devices.

    Bingo.

    Drew Bear - 02 October 2011 04:55 PM

    The more I think about the Kindle Fire, the less concerned I am that it will affect Apple in any significant way. But it will be interesting to see how it continues to shake up the non-iPad market in the following weeks.

    I think it’s going to eviscerate tablets like the Nook. It may even draw some sales away from the current iPad competitors because some of those purchases are coming from the “Anything But Apple” crowd. Buying a fully functioning Kindle Fire might be preferable to buying any of the current crop of crippled Android tablets.