Top Reasons Why Apple Should Worry About Amazon's Tablet

ANALYSIS

   on September 27 2011 7:13 AM
Apple iPad 3
Speculations are rife that Apple will launch the iPad 3 early this year and the device will include a Retina Display and an upgraded processor (A6) from the dual-core A5 chip Reuters

With increasing evidence that Amazon will release a tablet computer for the holiday season, including recent comments from CEO Jeff Bezos to stay tuned when asked about the possibility, there are enough reasons for Apple to worry.

Online retailer Amazon, which is known for its Kindle e-book reader and aggressive pricing strategy, is expected to release a tablet running on Android. Amazon is expected to unveil its Kindle tablet in a press conference to be held in New York on Sept. 28.

Much is rumored about the features of the new Amazon tablet, which would reportedly named as Kindle Fire. Though it is unclear whether Amazon will release a 7-inch or a 10-inch model, speculations are rife that both are coming.

We expect a 7 tablet priced at $200 to $250 with a Nov. launch, and a 10 tablet priced at $299 with a Nov./Dec. launch. Both have very tight Amazon web services tie in, Jefferies analyst Peter Misek wrote in a recent note to clients.

The tablet from Amazon could be a tough competitor to Apple, which haven't seen any significant threat for its iPad 2 barring Samsung Galaxy Tab 10.1. However, Apple has managed to block the Galaxy Tab in several countries by suing for patent infringement.

We have written about the forthcoming Amazon Tablet for a number of months and continue to believe that given Amazon's arsenal of media content (music, streaming TV and movies), digital books, app store and distribution strength that the company's tablet offering has an opportunity to offer something competitive to the iPad, Wedge analyst Brian Blair wrote in a recent note to clients.

Let's take a look why Amazon's tablet could be a threat to Apple's iPad:

Marketing Strategy

Amazon has a massive marketing platform and has already built a massive following for tablet-like devices via the Kindle e-book reader.

Washington-based Amazon has shown an ability to offer a compelling piece of hardware at a discounted rate with the Kindle. Currently, the Wifi only version of the e-book reader sells at $114.

Blair expects Amazon to price their new tablets in the $250 to $350 range. If HP TouchPad after-market and eBay sales are any indication, consumers are willing to spend $300 for a good tablet and this may be the sweet spot for non-iPad market entrants.

Going by the analyst's expectations, Amazon may price the Kindle tablet at half the price of iPad 2, which starts from $499.

Amazon may release a cheaper tablet that would do all the basic functions that one normally does on a tablet such as email, surfing web and watching videos. So, if Amazon's tablet manages to do well on these fronts, then it could be an excellent alternative to iPad for price-conscious consumers.

Ecosystem:

What's different about Amazon jumping into the tablet sector is that the company is the only tech company outside of Apple to offer a diverse range of media/content available to potential tablet users on day one.

The content offerings include Amazon Video, Amazon Music and even Amazon games. In addition, the device would leverage Amazon's recent cloud drive storage capability for browser-based streaming or through a Cloud Drive app.

As with Apple's iTunes, users could log into the Amazon tablet using their existing Amazon ID and instantly gain access to movies, TV shows, music, digital games, Android Apps, and more.

Amazon already has customer's credit card numbers, which is critical for giving easy access to content.

Apple has frequently spoken of the power of the number of credit card users iTunes has, Amazon is the only other player in the industry to have something similar, Blair said.

Amazon also has consumer's trust that has been built up over more than a decade of good service. This is a tremendous advantage.

If done right, this could put Amazon near the front of the tablet pack from day one, both due to its ability to market the product on its homepage (as it currently does the Kindle) and the ability to offer users access to a wide range of content that rivals iTunes at launch, Blair wrote.

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