Just a few years ago there were no tablet computers, at least not as we currently define them. It was just April 2010 when Apple sold its first iPad. Then came the avalanche. In 2010, a total of 14.8 million tablets were sold, and Apple dominates the current tablet market. All of the tablet competitors combined--RIM, HP, plus various Android model--only represent less than 20% of tablet sales.
However, Amazon is about to change all that. The key word there was "alternative;" the Kindle Fire is not a direct competitor to the iPad, but represents a fascinating new sub-category. And although alternatives don’t necessarily make great drama, the story unfolding here is intriguing. Amazon trumped Google.
The iPad is a very simple device, so simple that there is no reasonable explanation why it took so long to discover it. The iPad is conceptually identical to the iPod Touch--which Apple unveiled in 2008. Clearly, iPods and iPhones were prerequisites in making the iPad possible. The iPad does not represent a technical break, though as is typically associated with revolutionary devices. The iPad is more about realizing the intersection between the technically possible and how mobility changes the nature of work. These factors created an opportunity for a new device category, and the iPad nails it.
Other devices with similar (even better) specifications fail. The iPad benefits from a strong ecosystem--a primordial stew that doesn’t exist for the other devices. This will continue for years to come.
Competitors trying to grab market share can’t just offer a device "as good as" the iPad, but instead need to shoot for "better." There are only so many hardware variables: screen size, processor, memory, I/O ports--they have all been tweaked. Better specifications bring a higher price, and higher specs (or even comparable specs) can’t come close to Apple’s volume-adjusted manufacturing costs. Competitors have no incentive to sell the tablet at or below cost (dumping--which HP took literally with the discontinued $99 TouchPad) because there is no assurance of subsequent revenue. Apple wins on parts, and on follow-through revenue because it makes money when customers buy apps at the App Store (while simultaneously building lock-in loyalty).
Toshiba, HTC, Samsung, and the others don't profit from Google Marketplace sales, nor do those purchases build customer loyalty. So instead they must profit on the sale of the device itself--which is practically impossible. Nor can they compete on value because no one can match the selection of Apple's App Store. HP realized its WebOS tablet could not compete on price or value, so they killed it.
But Android thrives because it does have a compelling proposition to manufacturers. It is free (well sort of). Android itself has been free and open sourced, but Google keeps a tight rein via its apps. For a vendor to include Gmail, the Android Market Place, Maps, and others apps, the device must be approved by Google, which somewhat cancels the flexibility and benefits of open source. Avaya’s and Cisco's Android tablets don't adhere to these Google requirements. Their markets are business users, so the Android Market Place is not as critical. Consumer-oriented devices generally do meet these requirements, and their customers expect these apps.
Amazon took a page from the Barnes & Noble Nook, and is using Android in its new Kindle Fire, but unlike the Nook, it is positioned as a general consumer tablet, albeit a lightweight version. Amazon has its own marketplace and its own digital media stash of content. Amazon designed the Fire primarily for its users to consume content, keeping the hardware requirements lower and inexpensive. Unfortunately, cheaper/simpler hardware has potential problems with the increasing complexity of the broad open Internet. Amazon solved this with a split browser, a VDI solution leveraging its cloud based data centers for the hard part of browsing. Amazon effectively built its own primordial stew, and its Fire will flourish.
HP demonstrated the price elasticity of tablets: low prices do equate to increased demand. At $199, the Kindle Fire is expected to fly off its virtual shelves. There is nothing else like it on the market. It's an amazing consumer proposition--low cost, versatile device, an app store, and an extensive collection of digital media. It's an impressive proposition for Amazon too, since Google did the heavy lifting with Android development--for free.
Google doesn't seem too sure about this. The last two releases of Android (Honeycomb and Ice Cream Sandwich) were not released as open source (yet). Google also has a problem with Microsoft successfully squeezing its Android partners on licensing (Microsoft stands to make more on Android than on Windows Phone). And now that Amazon is using Android to take on Apple without any benefit to Google (or acknowledgement), the whole notion of open source Android needs to be reevaluated. If Google takes no action, there is a risk that future Android smartphones will start including the Amazon Android market in lieu of Google's Market Place.
When you have Apple, Amazon, Google, and even Microsoft involved in the same battle, it gets interesting. Each of these companies has a very different vision and goals around tablets and mobility, putting their product strategies on a collision course.
Dave Michels is a frequent contributor and blogs about telecom at PinDropSoup.
