Bloomberg News

Amazon’s Next Kindle Threatens to Challenge IPad Tablet Reign

September 23, 2011

Sept. 23 (Bloomberg) -- Amazon.com Inc.’s latest Kindle device, which may be unveiled next week, is poised to become the biggest threat to Apple Inc.’s iPad this holiday season.

Amazon has announced plans for a press conference Sept. 28 in New York, raising speculation that the company will provide its first glimpse of the new Kindle. The latest iteration of the e-book reader will have an improved interface and double as a tablet computer, with a touch screen in full color, said Anupam Palit, an analyst at GreenCrest Capital Management in New York.

By taking advantage of its ties with media and publishing companies to pack the Kindle tablet with songs, books and videos, Amazon may succeed where companies such as Research In Motion Ltd. and Hewlett-Packard Co. have failed. Amazon Chief Executive Officer Jeff Bezos will probably set a price that’s near the cost of production, Palit said. That way, the company can attract users who balk at the $499 to $829 cost of the iPad.

“You’re going to get the first tablet that functions as well as the iPad,” Palit said. “You’re going to get the first major competitor for the iPad that has a full media and e- commerce platform.”

While Amazon didn’t reveal details about the Sept. 28 press conference, the event will likely showcase the new Kindle, said Herman Leung, an analyst at Susquehanna Financial Group in San Francisco.

First Look

“It’s got to be,” he said. “This holiday season everyone wants to start earlier and earlier. Why not educate people at the end of September?”

Mary Osako, a spokeswoman for Seattle-based Seattle, didn’t respond to a request for comment.

Sarah Epps, an analyst at Forrester Research Inc. in Cambridge, Massachusetts, predicts that Amazon will “easily” sell 3 million to 5 million tablets in the fourth quarter. That assumes a price of $299, she said in a report last month.

Apple shipped 9.25 million iPads in its most recent quarter, which ended June 25. Though the product is less than two years old, it’s already the company’s biggest source of revenue after the iPhone. Apple also leads the market for mobile applications, with more than 425,000. Over 100,000 of those apps are custom-designed for the iPad.

Trudy Muller, a spokeswoman for Cupertino, California-based Apple, declined to comment on competition with Amazon.

Google’s Android

The Amazon tablet will run Google Inc.’s Android operating platform, which already supports Amazon’s application store, said Ken Sena, an analyst at Evercore Partners Inc. in New York. Amazon will have 5 percent of the total tablet market and about 16 percent of the Android tablet market this year, based on units sold, Sena said in July.

Even if it makes rapid gains, Amazon will have a fraction of Apple’s market share. The iPad accounted for 68 percent of all tablets shipped worldwide in the second quarter, according to Framingham, Massachusetts-based research firm IDC. Android tablets, including models from Motorola Mobility Holdings Inc. and Samsung Electronics Co., accounted for 27 percent.

Two other tablets have failed to make a dent so far. RIM’s PlayBook, introduced in the second quarter, sold 200,000 units, less than half of what analysts predicted. Analysts had already cut estimates for full-year PlayBook shipments to an average of 2.2 million, according to a Bloomberg survey.

Doomed TouchPad

Hewlett-Packard, meanwhile, discontinued its TouchPad in August -- only about a month after its debut. And Microsoft Corp. may not have its Windows operating system for tablets ready until next year.

Amazon’s store attracts millions of customers a month, which would help it promote a new tablet, said Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco. Total revenue is projected to rise 32 percent next year to $64.4 billion, according to data compiled by Bloomberg.

The company’s tablet “has a pretty good chance at emerging as a leader,” Sebastian said. “Amazon is likely the only one that’s going to produce something that’s close to the iPad that you would get with Android.”

The company can outpace other iPad competitors if it simplifies the tablet and makes the device intuitive to users, he said.

While price competition may take a toll on Amazon’s profit margins, the company hasn’t shied away from that in the past, Palit said. To challenge Apple’s iTunes music service, Amazon sold Lady Gaga’s album in its MP3 store for 99 cents.

Hardware Reliance

Apple gets more than 90 percent of its revenue from hardware. That may leave it vulnerable to an assault from Amazon, which could lose money on the device and then try to recoup the cost by selling more books and media.

The tablet also could set the stage for another source of revenue. Amazon has approached book publishers about starting a rental service for digital libraries that would require an annual fee, Palit said. Amazon would pay publishers a fee to participate, he said.

The retailer also may use video and book rentals on its tablet to promote its Prime membership program, which gives subscribers discounts on shipping and lets them watch movies for $79 a year, Sebastian said.

“It’s a way of enticing the content owners to leverage Amazon’s customer base,” he said. “They hope that there’s a payoff in terms of more velocity.”

Making it easy to get their books, movies and music will help Amazon stand out from failed tablet offerings, said Michael Norris, an analyst for Simba Information, a consulting firm based in Stamford, Connecticut.

“The thing that Amazon has done really, really well is they understand the relationship a consumer has with entertainment and content,” he said. “It’s all about the content that Amazon hopes to deliver with the tablet. If it’s seamless and easy, it could be attractive to a whole lot of people.”

--Editors: Romaine Bostick, Nick Turner

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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