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How Amazon Stole the Tablet Market

How Amazon Stole the Tablet Market

Once Amazon figured out the benefits of having a dedicated product pointed at its store and knew how much it could gain from such an offering, it had a subsidization model that would work, and you saw the result last week: two 7-inch tablets priced below where Apple likely can afford to sell product, and a 9-inch tablet that is a whopping $200 less than the comparable iPad.

By Rob Enderle
09/10/12 5:00 AM PT

As Apple demonstrated itself with the iPod and iPad, the way to take control of a market is to redefine it around a model that favors your products. Last week, Amazon took a page from Steve Jobs' book, both in how it presented the new Kindle line and in how this line shifts the market dynamic from one that favors Apple to one that favors Amazon. CEO Jeff Bezos even had a "one more thing" ending that Tim Cook will find it hard to top.

In addition, Amazon's tablet group -- which is populated by many ex-Microsoft employees -- appears to be showcasing what Microsoft likely could have done to better combat Apple but didn't. This last is actually more interesting to me than the iPad competition; I'll get into both this week.

I'll close with my product of the week: a new home wireless router/range extender that sets a new bar for ease of use and setup.

Changing the Game

What makes the Amazon tablets different is that they are fully subsidized by the content. With the first Kindle, Amazon discovered that it basically turned every user into a near dedicated Amazon buyer. This would be like putting a door in your home that opened only into a Target or Sears.

If you can be the front end to consumers' buying behavior, you can connect ads directly to purchases -- they see an ad for a product they like and can get it with a click. This value extends well beyond what Google offers in ads or what Apple currently has, because Amazon is a retailer. With this product, it is effectively creating a direct link to its stores, bypassing all else that consumers have come to depend on over the years, both brick and mortar and online.

You see, Apple is built around the old IBM hardware model, where the hardware leads and the software and services play minor roles. Apple never really made it into the software era, and when Microsoft stumbled, it reinstituted the older model. It wasn't the only one, either. IBM itself reestablished a strong position in the professional server and storage markets, taking advantage of similar weaknesses. At least it has a substantial software business as well -- and arguably, software leads hardware at IBM.

The Web is replacing the software model, though, and Google largely led that charge by putting most of what it had online. It seemed to lose its way after launching the ChromeOS, however, and locked back down on just copying Apple -- seeming to forget which business it was in.

Carriers made attempts to subsidize tablets, but consumers just weren't willing to pay another US$60 to $90 a month on top of their home network fees and their smartphones fees for a tablet, and that didn't work out. So smartphones were subsidized and -- until Amazon figured this all out -- tablets weren't.

Once Amazon figured out the benefits of having a dedicated product pointed at its store and knew how much it could gain from such an offering, it had a subsidization model that would work, and you saw the result last week: two 7-inch tablets priced below where Apple likely can afford to sell product, and a 9-inch tablet that is a whopping $200 less than the comparable iPad.

The products actually have better connections to services and content -- that is Amazon's business, after all -- and while they fall short on apps, the price savings during a gift-giving time of the year could have Amazon exit the fourth quarter -- at least in the U.S. -- as the market leader. (The Kindle won't be much of an event outside the U.S. this year.)

Amazon is massively building out its presence in the rest of the developed world, so it will take its tablet war global shortly.

Apple will have to substantially change its revenue model and potentially collapse its margins to compete, putting the firm truly on the defensive for the first time since the iPad was released.

Redmond May Be Red-Faced

This is even more embarrassing for Microsoft, though, because a large number of the key players building this product for Amazon were once Microsoft employees who disagreed with the direction it was taking with tablets and Windows and are now expressing their own ideas at Amazon.

These new tablets compete not only with the iPad but with the Microsoft Surface tablets and Windows 8 as well. If Amazon's tablets dominate, it will mean those ex-employees were right, and those who remained at Microsoft weren't.

Years ago, I met with the head of a large oil company who had fired a top young VP thinking him an idiot for the changes he felt were needed. That VP went on to work for a competitor that implemented those changes and later bought the then-failing oil company, forcing that CEO into retirement. This exemplifies a lesson I've never forgotten: Sometimes it is far better to be right than to prevail in an argument. Microsoft's executives could well relearn that lesson from Amazon this year.

In a way, if these tablets are more successful than either the iPad or the Windows products, they will represent a referendum on Microsoft strategy and a strong indicator that -- at least with personal technology -- Microsoft is on the wrong path. Had it been on the Amazon path, its fortunes and valuation would have been far better for much of the last decade.

Oh, and one more thing: My friend Carmine Gallo (who wrote The Presentation Secrets of Steve Jobs) and I have been saying that other CEOs can learn to present like Steve Jobs did. It is kind of satisfying to see someone do exactly that. Bezos may be the new Steve Jobs and, as a result, the new Kindle Fire has a much better shot at being the new iPad.

Wrapping Up: Turning a Market

Amazon is demonstrating a number of best practices with its Kindle move. It is staying close to its core retail roots, and rather than shifting -- as Google did -- to copy a hardware vendor, it carved its own path, using its own retail area of expertise. In short, it didn't play Apple's game; it changed the rules so that Apple now has to play on its home court.

That's how a weaker company beats a stronger company; it is how Microsoft initially beat Apple, and how Apple eventually beat Microsoft. I imagine it will also be how some firm eventually beats Amazon.

It is likely the new Kindle Fires will be the hot products this quarter and, if so, it will be because Amazon has done to Apple and Microsoft what those other companies initially did so well.

Product of the Week: Securifi Almond Touch Screen Router

Product of the Week

Setting up a new router or range extender is generally a pain in the butt. You typically have to install some utility or log into the router -- often a pain before it is configured -- and then go through a process of navigating menus that seems designed for a network administrator.

Then, if you have to change a setting, you have to remember where the software was, where to download it, and often figure out what the internal IP address and login is for the router.

Securifi Router
Securifi Almond Touch Screen Wireless N Router + Range Extender

Securifi sent over its Almond Wireless N Router, and it was a dream to set up. You see, this router has a built in touchscreen with all of the setup information on it. It takes you through a simple script, and if you want to change anything in the future, you can simply log into the router from the router and make the changes.

The color touchscreen kind of looks cool too, so you are more likely to put the router out in the open where it will work better rather than hide it in a cabinet someplace. I have an Apple router -- one of the market secrets is that many of the engineers who work for large enterprise router companies use Apple routers themselves -- and this Almond router feels more Apple-like in terms of ease of use than my Apple router does.

You can install the product as a router or as a range extender, and at $79 on Amazon, this thing won't break the bank -- and it is ton easier to set up than any of the four range extenders I currently have. This Securifi Wireless N Router and Range extender sets a new high bar for ease of use, and so it is a natural for my product of the week.


Rob Enderle is a TechNewsWorld columnist and the principal analyst for the Enderle Group, a consultancy that focuses on personal technology products and trends.


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