Tag: amazon

Battle Of The Tablet Business Models: Amazon Kindle Fire

RECAP

We’re looking at the tablet business models of Apple, Amazon, Google, Samsung and Microsoft. Today we focus on the Amazon Kindle Fire.

2.0 Amazon Kindle Fire

2.1 WHERE DOES THE AMAZON KINDLE MAKE ITS MONEY?

When introducing the new Amazon tablets, Jeff Bezos said:

“We want to make money when people use our devices, not when they buy our devices.”

Bezos’s description of the Amazon tablet business model would have been slightly more accurate if he had said:

“We want to make money when people BUY OUR CONTENT OR ACCESS OUR ADVERTISING, not when they buy our devices.”

Not as catchy, perhaps, but a tad more honest.

Bezos also said that he doesn’t believe in the razor/razor blade business model but I don’t know why because that is exactly the business model that the Amazon tablets are using. Amazon is selling their tablets (the razor) at or near cost and they are hoping to make their money from the sale of content and/or advertising (the razor blades).

Of all the tablet makers, Amazon is uniquely situated to make such a strategy work. While tablet makers like Apple, Google and Microsoft are interested in selling tablet owners tablets along with content such as music, books, television shows, movies and apps, Amazon is interested in selling their potential tablet customers EVERYTHING. Amazon has THE largest and most successful online retail store in the world. If Amazon can get you into their store and get you to buy things from their store, they win. To Amazon, the Kindle Fire isn’t so much a tablet as it is a vehicle designed take you to the Amazon store, keep you there and encourage you to spend your money there. It is just another form of advertising, marketing or promotion for the Amazon online store.

One of the brilliant “twists” to the Amazon strategy is that Amazon is saving money on software development by legally “poaching” their Amazon Kindle Fire operating system from Google’s open source Android. Google does all the work to create Android and then Amazon’s software engineers lift it whole and modify it to fit their specific needs. By the time Amazon’s software engineers are done modifying Android, their product barely resembles Android at all. In addition, they strip out all of Google’s money making properties and replace them with their own.

It must be particularly galling for Google to know that as they toil to make the Android operating system better and better, they are also toiling make Amazon’s competing tablet efforts better and better too.

2.2 WHERE DOES THE AMAZON KINDLE PROVIDE VALUE?

Amazon’s tablet hardware and software is much improved from last year’s offerings but where Amazon really brings value to their tablet customers is in the one-two combo of low tablet prices and an unsurpassed online shopping experience.

Amazon is able to keep their tablet prices low because they don’t intend to make any (or much) money on the initial sale of their devices. They can give their customers more tablet for less because they are making it up in content and advertisement sales. Amazon wants to lure you into their store with their tablet and then keep you there with their service and overall shopping experience.

And while it’s true that Amazon is making money off of you when you shop in their online store, people LIKE to shop at Amazon. Amazon’s selection is world class. Their prices are rock bottom. And their Amazon store software provides customers with one of the finest online shopping experiences anywhere.

A couple of quick analogies to drive home how the Amazon tablet business model works.

— If Amazon were a movie theatre, they would sell the tickets to the movies for cost and make their money on the sale of popcorn, soda and candy.
— If Amazon were in the game console business, they would sell their consoles at cost and make their money on the sale of the games.
— If Amazon were in the clothing business, they would sell T-shirts at cost, but they would put them in the back of their store in the hope that you would buy more of their other merchandise as you went to and fro in their establishment.

2.3 AMAZON KINDLE FIRE BUSINESS MODEL ADVANTAGES AND DISADVANTAGES

The advantage of the Amazon tablet business model is that their tablet prices are very attractive to a very large portion of the population. Further, Amazon doesn’t have to provide their customers with the latest or greatest hardware or software operating system in order to be competitive. Customers will overlook the Kindle Fire’s rough edges because they know that they are acquiring the tablet at bargain basement prices.

However, the Amazon tablet business model has some serious questions and some serious limitations too.

  • Business Model:

    • Does Amazon’s proposed business model even work?

    As we said above, Amazon is using the give away the razor (at cost) and make your money on the sale of razor blades business model. But that model presupposes that the razor blades are being sold at a PREMIUM.

    Famously, Amazon’s margins are razor thin (no pun intended) – as low as four percent. What good does it do Amazon to give away tablets for cost if they’re only making 4% profits on the sale of their content? It makes little sense. Yes, 4% is better than nothing and yes, they’ll make it up in volume but, as we’ll see, giving away tablets at cost is hardly risk free.

  • Who, Where, How and What:

    • WHO

    “The logic of selling a product which has a profit model unrelated to the cost of goods sold is tricky. The incentives are different. The risk is not selling too few but selling too many.” ~ Horace Dedeiu

    Apple, Samsung and Microsoft don’t give a damn about WHO they sell their tablets to. They make their money up front, at the time of the sale. But Amazon has to be terribly careful WHO they sell their tablets to, WHERE their potential customers live, HOW their customers use their tablets and WHAT kind of demographic that potential tablet owner hails from.

    WHERE

    The Amazon store is currently only available in the United States, France, Germany, Italy, Spain, and the U.K. This means that few people outside of those countries would have any interest in purchasing an Amazon Kindle Fire. More importantly, Amazon has no interest at all in selling an Amazon Kindle to customers who don’t reside in those countries. In fact, they have a strong interest in NOT selling their tablets to those who cannot buy their content.

    Remember, the Amazon tablets only make money from the sale of content or advertising. Contrary to the business models of Apple, Samsung and Microsoft, tablet sales numbers do not directly affect Amazon’s bottom line in any way.

    And don’t expect Amazon to suddenly expand their services into other countries any time soon The Apple App Store opened in 2008 and Apple currently sells Apps in some 150 countries. But after a decade of expansion, iTunes still only sells content in 62 countries. Content distribution is hard. If it weren’t, Amazon would already be selling their content in far more countries than they currently are.

    Simply put, Amazon’s geographically limited content distribution means that Amazon tablets can only compete with Apple, Google, Samsung and Microsoft in the United States and France, Germany, Italy, Spain, and the U.K. For those who are predicting that Amazon’s business model will destroy or put a serious dent in the business models of Apple and others, this should serve as a severe reality check. Even if Amazon does well in the geographic areas that they serve, Amazon tablets will do little to damage the overall sales numbers of their competitiors.

    HOW

    What Amazon tries to do with the brand is ensure that the Fire is in the hands of its most ravenous consumers. ~ Horace Dediu

    Amazon is also interested in HOW their customers use their devices. It you buy an Apple, Samsung or Microsoft tablet and throw it in a drawer and never use it, those companies still make their money. If you take an Amazon tablet and throw it in a drawer, Amazon makes no money. So it’s not enough for Amazon to get their tablets into the hands of consumers, they have to get their tablets into the hands of consumers who will continue to use their tablets and continue to buy Amazon’s other goods and services.

    This is analogous to the newspaper business. Newspapers could have dramatically increased their distribution by giving away their papers for free instead of charging for them. After all, newspapers made their money from the included advertisements and classified ads, not from the sale price of the newspaper. However, if newspapers were free, people who were not really interested in reading the newspaper would acquire them and use them for all sorts of unintended purposes such as lining bird cages or burning them for fuel.

    Newspapers had to charge enough to drive away those who weren’t going to read the newspaper but not charge so much that they drove away their target audience. The Kindle Fire has the same dilemma. It needs to be priced high enough to scare off the cheapskates but low enough to attract the bargain hunters. That’s a very tough, very tricky balancing act.

    WHAT

    Finally, the Amazon model of giving away hardware cheap does not attract the most desirable customers. It does Amazon no good to attract lots of customers if they are money-grubbing, coupon-clippers who refuse to later purchase Amazon’s products or respond to Amazon’s ads. It’s not enough for Amazon to sell their tablets. They have to sell their tablets to people who have money and who are willing to spend that money in the Amazon store.

  • Upgrade Treadmill:

    • During the Amazon Kindle Fire introduction, Bezos also said:

    “We don’t need you to be on the upgrade treadmill. If we made our money when people bought the device, we’d be rolling out programs left and right to try to get you to upgrade. In fact, we’re happy that people are still using Kindle Ones that are five years old.”

    Well, OF COURSE Amazon is happy that people are still using old Amazon Kindles. That’s their business model.

    Amazon makes no money from the sale of their hardware so they’re thrilled to have you continue to use their old hardware. They would like nothing more than for people to use their old hardware for as long as possible so that they don’t have to incur the expense of making and distributing newer hardware. However, this approach has some serious drawbacks and some serious risks.

    First, tablets are a fairly new device category. Tablets based upon Apple’s touch metaphor are only two-and a half years old. Accordingly, the hardware is still rapidly improving.

    While Amazon would like nothing more than to sell you a tablet and have you use it for 7 years — the same way that Microsoft, Sony and Nintendo sold their patrons game consoles and hoped that they would use them for 7 years — Apple, Samsung and Microsoft are following the exact opposite approach. They are iterating their hardware just as fast as they can.

    With tablets, as in smartphones, consumers have shown a willingness to rapidly upgrade their hardware and then sell or pass down their legacy devices to others. Bezos speaks of the “Upgrade Treadmill” as a negative but no one is forcing consumers to buy new tablets. They WANT to buy new tablets in order to take advantage of the latest and greatest hardware and software advances. Although it is in Amazon’s best financial interest to slow down the upgrade cycle, I doubt that consumers are going to stand for that. At this stage in the tablet’s evolution, upgrading is a boon, not a curse.

    Second, while a five year old device may be great for Amazon’s business model it’s terrible for Amazon’s platform efforts. Developers want to develop for a platform using a single operating system. (They never get that wish, but that’s what they want.) They want to provide their customers and potential customers with cutting edge software and they can’t do that if they’re forced to support 5 year old legacy devices. Amazon’s platform efforts are already far, far behind those of their tablet competitors and their business model makes it very unlikely that they will ever be able to catch up.

  • Apps:

    • Amazon may have more content that its rivals, but when it comes to Apps, they are woefully behind. Amazon is upgrading their App portfolio as fast as they can but the total number of apps available to Kindle Fire patrons is still relatively low.

    Further, Amazon has few large screen tablet optimized apps. Smartphone apps may be stretched to work on a 7 inch tablet but as tablet size increases, the need for tablet optimized apps increases too.

    Creating a thriving platform is hard. Ask Amiga in the eighties. Ask Windows Phone 7 now. Developers want to make money and they’re not going to make money if their platform is attracting penny-pinching scrooges who don’t want to buy content but do want to hold on to their tablet hardware for 5 years or more.

  • Limited Appeal:

    • The proposed Amazon tablets will be appealing to many consumers but it will also be unappealing to many more conservative groups. No government, business or scholastic organization is going to want to buy tablets that depend on advertising and which direct their constituents to the Amazon online store. Imagine, for example, legislators, or lawyers or students being given an Amazon tablet. It would be totally inappropriate for their purposes.

    Amazon’s business model lowers the price of its tablets and broadens its appeal to the masses. But Amazon’s business model also precludes it from ever being adopted by organizations. This is a significant limitation that seriously crimps Amazon’s potential overall market penetration.

  • Distribution:

    • Amazon’s distribution channels are extremely limited. Most of their sales comes from their existing online Amazon customers. While this is a large pool, it’s a finite pool and it makes it difficult for Amazon to reach out to new, potential customers.

    Further, Amazon’s distribution opportunities are actually becoming even more limited. Companies like Target and Walmart have recently stopped carrying Kindle devices because of perceived unfair competition.

    Many, many people will buy a tablet unseen, untouched, and online. But the vast majority of people will not. Amazon’s unique distribution channel might be viewed as both a blessing and a curse. But mostly, it’s an impediment to the growth of their tablet sales.

    Summation

    Jeff Bezos has made it clear that he’s all in with tablets. I admire him as much as anyone in tech and if anyone can make Amazon’s strategy work, he’s the man who can do it. But, as we’ve seen, Amazon’s business model holds more questions than it provides answers. Pundits will gauge Amazon’s efforts by the number of tablets sold but the number of tablets sold is meaningless. The only thing that matters to Amazon is how much content and advertising revenue those tablets generate. And since Amazon is notoriously stingy with its revenue and profit numbers, it may be a long, long time before we know whether the Kindle Fire’s business model was brilliant or just bizarre.

    We’ve now looked at the Apple and Amazon tablet business models. Tomorrow, we look at Google and the Nexus 7.

    What I Like About Amazon’s Kindle Strategy

    For the 12 years that I have been studying the technology industry, within my role as an industry and market analyst, I have tried to understand the strategic elements of this industry that often go overlooked. This is probably why I have spent so much time thinking about the strategic role hardware plays in Amazon’s business model.

    We have written quite a bit here at Tech.pinions about how Amazon’s business model is potentially disruptive, but more importantly a foreshadow of a model we may see more of in the future. Namely, how hardware as an extension of a service may represent the ideal way to consume said service.

    While on stage at Thursday’s Kindle launch, Jeff Bezos continually emphasized that Amazon at its core is a services company. In this regard Google and Amazon are very similar. They are both fundamentally services companies. They are also similar and unique, in that they both approach software and hardware with a services first mentality. What I mean by that is that they start thinking strategically with their services, then to software, then to hardware. Other companies in the industry take a hardware first approach. Some take a software first approach. Apple being vertical in all areas of personal computing puts equal emphasis on hardware, software, and services, and in this regard are unique as well.

    For Amazon, starting with a services first mentality, allows them to do things others simply cannot do. They build hardware not to make money but to be the best platform for their services. This allows them to create compelling hardware but offer it at a lower cost than a similar company making identical hardware but needing to make money off the hardware itself. This scenario is the only one where I feel price as a competitive advantage is valid. Generally speaking, a hardware only company whose goal is to be the first to the bottom of the price pyramid, is going to be the first to go out of business.

    Amazon has the fundamental business of being a services company to back up and justify a hardware as a service strategy. It is not a strategy that will work for everyone. And even though I find this strategy compelling, it is not the one I like the most.

    The strategy Amazon is using that I do like the most is that they are solely focused on a certain type of customer–the Amazon customer. With every generation of Kindle product, Amazon has constantly made things better for their customers. This type of strategy generates loyalty and trust; Something Amazon has with their customer base. Not only is Amazon focusing on their customer, they are also constantly learning about their customer. Customers needs may change, develop, mature, etc., and constantly learning and observing how to develop better solutions for their customers is a very smart approach and one Amazon is doing well.

    This is what stands out to me most when I look at Amazon’s product portfolio. Each product is designed to focus on a set of problems and offer solutions to those problems, which are important to a specific set of customers. This customer centric strategy is one that I feel will clearly resonate with Amazon’s customer base.

    Because of this strategy, I feel that it is easy for Amazon’s customers to perceive value. They will look at the Kindle offerings and somewhere in there find things that they value and consider investing. And because of Amazon’s hardware as a service mentality, the price barrier to entry is lower.

    It is clear that companies that are taking an ecosystem approach to their products and solutions are in strong positions for the future. Consumers are beginning to invest in ecosystems whether they know it or not. Ecosystems are sticky and Apple and Amazon have two of the strongest ecosystems in my opinion.

    I feel Amazon has one of the stronger strategies to compete with Apple, who is the clear market leader in tablets. Amazon is in this for the long run. They understand the tablet market is a marathon not a sprint. They understand it is a very big market which can sustain more than one player. But by focusing on their customers needs I think they have the right strategy for the long haul.

    Kindle Fire Free Time and the Future of Family Computing

    Tablets are one of the more uniquely positioned personal computer products I have ever seen. Largely because they have aspects of personal computing traits the same way a notebook does. However, they also have a more shared screen or communal set of traits which notebooks do not have. Desktops have evolved in a way where they have become more of a communal or family PC. But they are big, stationary, and most households only have one. Tablets however are more mobile and for that reason get passed around to other members of the family more easily. Just look at how many parents pass their iPads to kids to use in a variety of ways and you can see how a tablet can also be a shared personal mobile computer.

    Tablets start to get very interesting when you think about them in the context of a family or a larger community. This is exactly the kind of thinking Amazon has begun and the beginnings of this trend can be found in a new experience they launched with the newest Kindle Fire’s called Free Time.

    Kindle Free Time is a customized experience on both new Kindle Fire’s for kids. It comes with parental controls built in that allow parents to monitor and set limits with the child’s screen media time. For example, a parent can set no time limit for reading (because who doesn’t want their kids to read more) but set a limit for how many minutes a day the child can play games or watch videos. Non children’s content is locked out of Free Time mode and the browser is as well. The color theme on the screen is blue, where the main Kindle Fire mode is black. This way the parent can quickly glance at the tablet and make sure the child is still in Free Time mode and hasn’t hacked the password.

    This kind of thinking around software customizations for a shared computing mode is encouraging for me as I look at ways personal computing solutions evolve to support family computing models.

    I still debate in my head heavily the degree that tablets are personal computers vs. shared computers. I think the answer is that they are both and software that allows this multi-modal experience will be well received by the market and in particular families. Interestingly it is Amazon’s creation of the Whispersync network that will enable this. I can envision a scenario as this strategy evolves where it doesn’t matter whose Kindle Fire HD I pick up, I can just log in and pick up any game, movie, book, etc., right where I left off. This is not how it works today but thinking in terms of communal and family computing, I think it will evolve this way.

    I hope many tablet manufacturers and platform providers are taking note of Kindle Free Time and begin to think more about family computing modes with their solutions.

    Amazon Is Poised to Become A Powerhouse in Tablets

    During the last year, Amazon ventured into the world of tablets with the Kindle Fire. It clearly represented their first salvo in this market and according to their extrapolation of current tablet data, this aggressively priced tablet now has 22% of the US tablet market.

    Today Amazon became an even bigger player in tablets with three new models that are set to shake up the Android tablet market in a big way. And at the moment, they could even have an impact on Apple’s sales, at least until they introduce the highly rumored iPad mini later this year.

    Amazon also introduced a new version of their eInk Kindle eReader that is sure to become the standard in eBooks. Amazon says they have sold over 10 million Kindles already and I believe that the newest model will help them bring more converts into the world of dedicated eReaders.

    By now you have probably read many blogs and news reports about the actual products Amazon unveiled today in Santa Monica, CA but there are three products I specifically want to highlight. The first is the new Kindle eReader with what they call the Paperwhite backlit screen. This is a very thin model with an innovative eInk screen that basically triples the data resolution because of the way it renders fonts. And, there are a lot of new fonts you can choose from as well as font sizes that can be customized for individual reading styles. The backlit Paperwhite eInk display is clearly the best screen I have ever seen in an eBook reader.

    This one will be a huge seller with people who want a dedicated eReading device. Also, Amazon introduced a new thinner Kindle with the existing eInk screen but with higher resolution that is now priced at $69.00.

    The second product I want to highlight is the new Kindle Fire HD. They did show a Kindle Fire that looked much like that last version but with an updated processor, more RAM and new software. But the one that will set a new standard for 7” tablets is the HD version of the Kindle Fire.

    The Kindle Fire has a 1280 X 800 resolution screen with a true white polarizing filter, and the new TI 4460 processor. It also has a no air-gap laminated display that includes Gorilla glass. Amazon officials say this gives it 25% less glare than the iPad screen. Since HD content is larger it will come in 16-or 32-GB models . A new DSP chip will support MIMO radios, delivering 40% faster WIFI throughput.

    But one feature that makes this the best 7″ on the market, bar none. Amazon has included the new Dolby Digital + sound system that adds greater sound dimension. We got a chance to see it demoed in the Dolby offices two weeks ago and were stunned by the increased sound quality it gives a tablet. Dolby is licensing this to other tablet vendors, but the new Fire is the first to hit the market and the Kindle Fire’s sound quality with its new speakers really sets it apart.

    Amazon also includes an enterprise-class Microsoft Exchange-compatible email client and calendar, giving it greater versatility within an Android based OS. In fact, one of the big complaints about Android is its poor email client and Exchange support and the Kindle Fire HD with true Exchange support solves this problem.

    Although Amazon has done some great new work with the hardware, they are also innovating in software. And one of the more significant software offerings is Kindle Free Time, a parental control that allows parents to set the time that kids can use the Fire. It also and allows parents to pin only kid-friendly content to this area, barring children from the main Fire content. This is extremely important since 7” tablet are finding their way into more educational settings and these controls are a godsend for parents and schools.

    We believe that products that cater to how families use these devices together as a community will be well received in the market place.

    But the big surprise in today’s announcement was the new Kindle Fire HD with an 8.9” screen. This larger tablet has a 1920×1200 resolution and sports the new TI 4470, an extremely fast low-voltage processor. It is very thin–just 8.8 mm thick–and is 8% lighter than Apple’s current iPad. A 4G LTE version with 32 GB of storage will be priced at $499, well under Apple’s current pricing for a similar 4G configuration of the iPad. It will ship just before Thanksgiving.

    There had been rumors floating around that Amazon was working on a larger Kindle Fire but the details took most of us by surprise. Although not as large as Apple’s 9.7 inch iPad, it will give Android users a larger option to view content on and because of the true Exchange support, they might even want to use in for productivity.

    From an analytical viewpoint, the new Kindle Fire HD should have Google very concerned since it easily trumps their new Nexus 7 tablet. Plus, it is tied to Amazon’s great ecosystem of content and in fact, any Android vendor with 7″ or 10″ models should be quaking in their boots if they have to go against Amazon and these new Kindle Fire HD offerings.

    Amazon says they still have a ways to go to even come up to where Apple is with the iPad, but even Apple has to look at these new offerings from Amazon and be impressed. Of course, this edge for Amazon especially in the smaller screen tablets could be short lived if Apple does introduce their own version of a mini iPad at very aggressive prices. And we don’t know what Apple has up their sleeves for a new iPad that will debut early next year. Yet, the Kindle Fire 7″ will hold its own thanks to increased media available to Amazon Prime customers and at the very least will be a worthy competitor to any smaller iPad Apple might eventually introduce.

    There is no question in my mind that Amazon is in the tablet/hardware business for keeps. They clearly understand the value of owning the hardware, software and ecosystem and are clearly on track to emulate Apple’s own strategy of owning and controlling their hardware, OS and services strategy.

    These new offerings from Amazon, especially the 8.9inch model, should also compete with Windows tablets thanks to the Exchange support and should undercut Windows 8 tablet prices considerably. And while Windows 8 tablets will be squarely aimed at businesses, if the 8.9” Kindle Fire HD picks up steam with consumers, it could become a candidate for BYOD at some point, which could make it even more competitive with Windows 8 tablets in IT.

    This new offering puts Amazon on a whole new map in the tablet world and has now become a force to be reckoned with in this market. And with extremely aggressive price points starting at $199 for the HD 7″ and $299 for the Fire HD 8.9 they are making a compelling case for the Amazon hardware ecosystem.

    Making the Cloud Safe for Consumers: Time for Apple To Step Up [Updated]

    iCloud illoThis has been the Year of the Cloud.  Apple, Microsoft, and Google, the three companies that matter most to consumers, have all been rushing headlong to establish personal clouds that will link consumers’ data across multiple devices, making it available anywhere, any time. What could possibly go wrong?

    We learned the answer in dramatic fashion this week when a hacker, apparently just out for kicks, wreaked havoc on the digital life of journalist Mat Honan, wiping his iPhone, iPad, and MacBook, deleting data from his iCloud and Google Apps accounts, and sending out a stream of ugly tweets from the account of his former employer, Gizmodo. Honan’s Wired account of just what happened and how is long but well worth reading.

    A watershed event. It’s rare that a single incident marks a true tech watershed, but this may well be one. The personal cloud is definitely looking like the Next Big Thing. But the problems raised for cloud purveyors including Microsoft, Google, and above all, Apple are not just issues of public relations or marketing. They are going to have to make some real changes to assure safety.

    Apple bears the biggest initial burden because of the ease with which the still unidentified attacker winkled Honan’s password out of Apple technical support and the company’s utterly incompetent handling of the issue once Honan discovered his problem. (Amazon played a relatively small but critical role in the attack, which relied entirely on social engineering rather than a technical assault. Wired Gadget Lab reports  that Amazon has quietly plugged the hole.) But Apple, as it its wont, has remained stonily silent on the matter. According to Gadget Lab,  Apple appears to have shut down telephone iTunes password resets, the crucial point of attack against Honan, but the company has announced no policy changes.

    UPDATE: Apple spokesperson Natalie Kerris confirms that the company has stopped providing password resets over the phone. It plans to resume the service at some unspecified point in the future, but when it does so, users will be required to provide stronger authentication.

    By his own admission, Honan made several serious mistakes in this episode, the most serious being the way he linked his Apple iTunes, iCloud, and Google accounts. That allowed a successful attack on one to be used against all. But if a savvy and experienced tech journalist couldn’t get this right, how much greater is the risk for the average consumer? Apple all but forces you to use the same username and password for iTunes and iCloud; the password you use to secure 99¢ song purchases can open the way to someone wiping out the data on a Mac.

    Friction isn’t always bad. Apple’s goal in setting up iCloud was clearly to make transactions of all sorts as frictionless as possible. But friction is by no means always a bad thing, especially when it slows down an attackers. There is nearly always a tradeoff between convenience and security, and its clear that the dial is going to have to be turned toward security.

    Keeping the focus on iTunes/iCloud, iTunes itself does not require a very high security barrier. Although you have a credit card on file, it’s hard for an attacker to buy very much very quickly. The main change needed is that Apple should greatly speed up the process of sending email purchase notifications. On Amazon these are nearly instantaneous, but I sometimes don’t get iTunes Store or App Store notifications until a day after the transaction. Your best protection is to get immediate notice if someone is making unauthorized use of your accounts.

    Changing account settings, especially the email address associated with the account, should require a much higher level of protection, as does access to any iCloud data and the Find My Mac, iPhone, and iPad features. These features are used infrequently, and introducing a little, or better yet, a lot of friction will provide protection with minimal inconvenience. And password recovery procedures need a top-to-bottom reconstruction. For example, an individual who cannot produce acceptable credentials online or on the phone might be required to go to an Apple Store with government-issued ID and a credit card to establish identity. Yes, it is inconvenient; it’s supposed to be. (In Honan’s case, stronger passwords would not have helped in the least since the attacker was able to obtain his password.)

    Unintended consequences. Another issue the industry as a whole has to come to grips with is unexpected interactions among different cloud services. This is an old and very difficult problem in security. Amazon’s policy on revealing information on existing credit cards when you entered a new one was mildly dumb. But combined with a totally unrelated Apple policy that let anyone use the last four digits of a credit card number to recover an iTunes password, it became catastrophic. Honan thought linking iCloud to Google was an innocent choice, but it, too, proved to have disastrous consequences.

    The personal cloud is far too valuable to put it at risk through stupid security practices like those that clobbered Honan. It’s time for the services to take the lead and fix the problems in a public and transparent way (I’m looking at you, Apple.)

    Final bit of advice to users: Honan says his biggest regret in this episode was the loss of photos of his child’s first year. As useful as the cloud is, it is no substitute for a secure local backup or backup to a dedicated service. Sync is great, but it is not backup. You should understand how different sync services work. I’m a big fan of SugarSync, which not only stores data in the cloud but, for important files, creates up-to-date local copies of files on multiple PCs. For important data, a belt, and suspenders, and maybe a second belt isn’t too much.

     

    The Case for 7-inch Tablets

    Last week the rumor mills and tech blogs were bustling last week about the possibility of a 7-inch iPad, potentially called the iPad Mini. Rather than focus this entire column on why it makes sense for Apple to make a smaller version of the iPad, I figured I would point out why I think there is a market for 7″ tablets and how such a product may fit in Apple’s and others portfolio.

    The Evolution of Portable Entertainment

    In my view the 7″ tablet represents the evolution of portable entertainment. In many of the same ways that the iPad itself represents the evolution of portable computing, so would a smaller iPad represent the evolution of portable entertainment. I spoke about this and was quoted on the subject last week with many press, and my overall point was that the right way to think about a smaller iPad is that it represents more the evolution of the iPod than the evolution of the iPad.

    7″ tablets may very well be the ideal size for an ultra-portable entertainment focused tablet. The form factor itself makes it highly portable. It can fit in purses, coat pockets, and many other places easily. The screen size is more enjoyable for entertainment than the most pocketable computer (the smart phone) but still small enough to be more portable than a 9.7-10.1 inch tablet.

    The larger tablets like the iPad are more mobile than notebooks but still capable of being used for productivity. In my view the iPad is a general purpose tablet where a 7″ tablet is more specialized and its value will be centered around entertainment.

    For the iPad customer I don’t see the value of owning an iPad and an iPad mini. The iPad in my opinion is capable of fulfilling the task of personal computing for the vast majority of mass market, non power user consumers. In our talks with this specific group of consumers were are finding that their iPads are slowly replacing their traditional PCs and we expect this trend to continue.

    However, there will still be plenty of consumers who still desire, want, need, a new notebook. This market may very well benefit from a more portable media companion like a 7″ tablet. The notebook plus a 7″ tablet combo will be an ideal solution for a certain segment of the market. And the sufficiency of the iPad as a portable media companion and personal computer will meet the needs of other segments of the market.

    An iPad mini strengthens Apple’s ecosystem plain and simple.

    For Google, and Amazon, a 7″ tablet is not an ecosystem strengthener it is an ecosystem extender. Amazon’s strategy is to drive commerce and they desire their screen to be consumers personal window to spend money in the Amazon commerce engine and consume Amazon services.

    Google’s desire is to extend all of the Google services to a market broader than smart phones. The Nexus 7 is the first solid step in this direction and has all of Google’s services tightly integrated.

    For all the above companies a pure media tablet play makes sense. All the above companies have more ways to make money on these devices than just the hardware. So where does that leave everyone else?

    There was no MP3 Market

    I recall the saying that there was not an MP3 market there was only an iPod market. The same case can be made for the iPad to date. The question in my mind is whether or not this 7-inch tablet market is sustainable for many or just a few. More specifically can anyone but Apple, Google, and Amazon make any money from this form factor?

    I use the MP3 market illustration because I am willing to bet that the fundamentals of the 7″ tablet market will function very similar to the iPod market. Namely because the 7″ form factor represents the evolution of portable entertainment, which the iPod was an evolution of as well. These devices will also likely not see subsidization from a carrier any time soon or heavily discounted from a retailer. They are also highly dependent on a rich media ecosystem of services like music stores, video and TV show stores, digital books and magazines, etc. In many ways these devices represent to consumers a larger version of what they knew and loved about the iPod.

    The devices being positioned primarily as entertainment devices, and their subsequent dependence of rich media services, only strengthens the case that this market favors the few over the many. I am in no way saying others can’t compete only that it will be very difficult and they may need to turn over new stones in order to find partners who own all or parts of a rich media ecosystems.

    Where is Microsoft?

    This discussion about the 7-inch tablet segment begs a fascinating question. Can Microsoft play in it? Microsoft has fundamentally built their next generation operating systems as the purest blend between a full desktop and full tablet software platform. This philosophy is not going to work on a segment that is focused purely on media. Metro may all by itself but not Windows 8. So is the answer Windows Phone? Is Windows Phone the solution Microsoft can offer any potential customers looking at the 7″ segment? Microsoft has Nook assets at their disposal but the Nook platform was built on Android. Do they need to revamp Windows Phone or create something new around Nook assets? Or does Microsoft let Android have the 7″ market as the platform of choice for any company not named Apple?

    Microsoft is on the eve of simply trying to gain a foothold in tablet computing at large, while on that same eve a new category is dawning that I don’t believe the are even remotely prepared for. Microsoft’s reaction to the 7″ tablet market will be one of the more interesting story lines to watch.

    All in all the tablet category is still the fastest growing segment in personal computing. Even though 7″ tablets will be focused on entertainment and media they will continue to ignite this new growth phase of personal computing. I think we can again confidently predict that tablets will be hot again this holiday.

    Android’s 7-Inch Tablet Future

    It wasn’t a secret that Google was going to announce a 7-inch Nexus tablet made by Asus and running Nvidia’s Tegra 3 chipset. And announce it Google did yesterday to much applause and fan fare. As we and a great many anticipated the tablet is designed as pure media tablet rather than a general purpose tablet like the iPad. As we watched the demo it became clear the Nexus 7 is targeted right at the Kindle Fire and nothing else.

    I have been thinking a lot about what Android’s future in tablets may hold and I believe we now have the answer. Android’s sweet spot for tablets may be 7-inch pure media and entertainment slates. These devices will be built and optimized specifically with entertainment not productivity in mind. They will also be very low cost and derive a significant amount of value from cloud services. This also fits right in line with Google branding their store “Play.”

    This makes sense if you think about the fact that the most successful Android tablet to date, the Kindle Fire, is a 7-inch pure media tablet. With the iPad, and now on the eve of Windows 8 tablets all targeting the 9.7 to 10.1 tablet screen sizes with more general purpose tablet strategies, I anticipate the larger screen Android tablets to struggle.

    Android has struggled as a tablet solution in the general purpose segment due to the immature nature of Google’s tablet ecosystem. Apple remains dominant in this area and it seems like many firms strategies are to avoid competing with Apple entirely. This is clearly the direction Google is taking with the Nexus 7.

    With that context I want to point out two areas important for this segment. One that favors Amazon and one that favors the Nexus 7.

    Cloud Services and Consumer Trust
    The Kindle Fire commerce ecosystem both in terms of digital media and consumers trust in Amazon as a commerce vendor are key areas where Amazon has an advantage of the Google right now. Amazon has over 100 million credit cards of consumers on file who all trust Amazon as a vendor. I don’t believe Google has released how many accounts they hold but I guarantee you it isn’t nearly as many as Amazon, or Apple for that matter.

    Amazon has a more mature ecosystem when it comes to digital media and consumer trust for commerce. This is an area Google is attempting to strengthen with the Nexus 7. During the announcement of the Nexus 7 the statement kept being made that the device was built for the Google Play store. Google is clearly hoping that this device will generate more trust for their commerce platform and strengthen their commerce ecosystem.

    Retail
    This is an area where Google 7″ tablets may have an advantage over the Kindle Fire. Google has not yet stated when or if the Nexus 7 will ever appear in retail but you know other OEM will come out with 7″ media tablets who will get them in retail.

    Retailers have been understandably conscience of Amazon’s commerce strategy with the Fire being potentially disruptive to their own brick and mortar store strategy. If that trend continues you can imagine more retailers not carrying the Kindle Fire and filling that hole with other OEMs Android 7″ media tablets.

    To the extent that retail will be important for this segment the advantage goes to Google in this area.

    I am not sure the extent the tablet market is ready to segment into specialty tablets but if they keep their prices low and overall time investment low then I think they have a chance to become companion media devices.

    Of course if Apple jumps into this segment with a 7″ tablet I will have to re-consider some positions I am taking currently. However, if Apple does this it will only validate the 7″ media tablet segment at which point I would expect OEM investments in the category to ramp extremely quickly.

    Is there a future for dedicated eReaders?

    When Amazon introduced their first Kindle eReader, there were a lot of articles that suggested that this device represented the future of books. Many wrote that thanks to the Kindle, eBooks would go mainstream and be the most popular way people would read a book in the future. To some degree, there was a lot of logic and truth in this idea. eBooks can be downloaded instantly and in that sense they are much more convenient then having to go to the local bookstore and pick them up or order them online and wait for them to arrive days later.

    The Kindle also had another thing going for it. It had an extremely long battery life and you could read it in direct sunlight. Not too long after the Kindle was released, other eBook readers came out from Kobo, Barnes and Noble and many more and even publishers started to jump on the eReader bandwagon and began releasing thousands of books in eReader formats. Over the last two years, prices have also come down so that you can get some eBook readers for as low as $79.00 today.

    While eBook readers have had solid sales up to know, the entry of Apple’s iPad and other tablets are set to challenge their need to exist. Amazon, Barnes and Noble, and Kobo all realize this and have apps to their eBook stores on almost all tablet platforms today and in the case of Amazon and Barnes and Noble, they are also embracing tablets in a big way and, in a sense, starting to downplay their dedicated eReaders and pushing their customers to their tablet versions instead.

    Do Amazon and Barnes and Noble think that demand for dedicated eReaders will completely disappear? Not necessarily. But they do know that something big is going on with tablets and that these types of devices will soon become the major platform for reading eBooks. In fact, Amazon is leading the way with their Kindle Fire and adding a key ingredient into their mix that has the potential of really shaking up the entire tablet market and potentially doom the eReader in the future.

    The key ingredient is something called subsidization. The Kindle Fire sells for $199, but sources tell us that the bill of materials (BOM) for the Kindle Fire is at least $215.00. But Amazon is willing to sell it at this price because they expect a Kindle Fire buyer to purchase perhaps at last 10 ebooks, rent at least 5 movies and buy various products through the Kindle Fire from the Amazon store that they can amortize against the actual cost of the Kindle Fire and actually make a profit on it.

    But Amazon does not have a patent on this idea. Indeed, Walmart has all of the things needed, included an eCommerce store for all of their products along with a real interest in renting eMovies, selling eMusic, etc online to do something similar. And in their case they also have the storefronts to back this up. They may count on the fact that their users will buy even more products from them if they own a Walmart tablet and make it really easy to buy eBooks, eMusic, download eMovies and buy products from their online store. They can use it also as an advertising vehicle for special Walmart offers. And in Walmart’s case, maybe they sell their subsidized tablet for $99 or in some cases, even give it away with special promotions. Although Walmart has shown no interest in doing this, they are the one major retailer who could map Amazon’s model and do something very interesting in the tablet space if they wanted to.

    Take Proctor and Gamble as another example. They have over a hundred products they would like to sell you through their retail partners. What if they can get a reasonably priced P&G tablet built and branded for them and then uses it to drive promotions to the users and subsidize part of the cost of the tablet for their customers. From the users standpoint, the Web apps drive their broad content and app needs. But P&G now has a captive audience who is willing to get their ads in return for paying a very low price for this tablet.

    If you add the subsidization equation to tablets, you might be able to see that the future for tablets may be where families could have four or five scattered around the house at their disposal and some could be subsidized by various vendors so that owning more than one is the norm. While the OS may still be important to handle localized apps for some, the most used feature will be the Web browser and Web apps, tied to the cloud where most of your personal digital life will reside. And since the Kindle app could be on all of them, your entire library could be in sync and you just pick up the tablet closest to you at the time and start reading where you left off.

    The bottom line is that today’s tablets are great and thanks to Apple, the role of tablets in our lives is being flushed out now. But I believe that the tablets of the future will just be screens that use a browser to connect us to everything we need from the cloud and be cheap enough thanks to subsidization so that each room in our homes might have one and when you need one, you just pick up the one that is closest to you. Although there may be some people who would still want to buy a dedicated eReader, it seems to me that subsidized tablets could become so ubiquitous within the home that it could some day become the eReader of choice and the need for dedicated eReaders will disappear.

    Why Amazon Will Create Brick and Mortar Retail Stores

    Over the years, in my various discussions with Steve Jobs about Apple and their products, there was one theme that always came out when we discussed any of his product designs; they had to be easy to use. In fact, he was the consummate customer of Apple products. If he deemed them not “easy-to-use” then it was back to the drawing boards until they were.

    But while this was at the heart of his designs, he also knew that easy to use was actually a relative term and that in the end, there are a lot of variables around the technology people use that determined if they were easy for “them” to use or not. So when Apple was creating the Apple stores, they made sure that they did not just create a place where people can come and buy an Apple product. Indeed, an Apple store, with its extremely knowledgeable sales staff and their genius bars are just as critical to the success of Apple’s stores.

    What Jobs and team fundamentally understood is that for those who use technology every day in the office, their ability to use a Mac and Apple’s products are intuitive enough for them to learn and use out of the box. But for the millions of people who do not use technology as part of their work or school, even easy to use products can be intimidating and some will need hand holding from time to time. Apple also understood that as people begin to integrate them into their daily lifestyles and use them as the center of their digital universe, the variables of how to make the technology work for them would only increase. With that in mind, Jobs and team knew that they needed to not only create a product but also had to provide the software and services, in an integrated way, if they were going to grow the company and become extremely profitable.

    This formula is not new. In fact, if you look at the history of mainframes, mini-computers and even PCs, they all followed a similar evolutionary path. First comes the hardware, then the industry backs a major OS for these systems, which then makes it possible for the software world to create the programs that make the hardware indispensable. But over time, the profit is taken out of the hardware and the real money shifts to software and services. This is especially being played out now with the PC crowd. The profits are gone in hardware and only the software guys (i.e. Microsoft) are making any money in the PC game. That is why HP has spent billions on EDS and their service business because all of the real profits for the hardware guys have shifted here.

    Related Column: Dear Industry Why History Won’t Repeat Itself

    Apple is insulated from some of these issues since they control the hardware, software, and services. But while most people think of their services as iTunes and their related apps and cloud services, they miss the fact that their Apple stores are also part of their services offering. A good way to think of this is that the Apple store is their EDS. They are there to interact with the customer, to help them integrate Apple’s various products into their life or work-styles and if there is a problem, solve it for them on the spot. (Sounds a lot like EDS and the big service providers does it not?)

    This is why Microsoft has suddenly entered the retail business. While selling their products is part of their retail offering, these stores are their “EDS” that meets the needs of their consumer’s customers. Like Apple, these stores are there to help them “integrate” Microsoft products into digital work and lifestyles and if problems arise in doing this, be the place to come to help them deal with it. While the Microsoft stores need to break even, they are not necessarily profit centers. Instead, think of them as consumer service centers that keep the customers happy and making sure they keep buying products that use Microsoft’s software from all of their partners.

    Google opening a store in Ireland is a nod in this same direction. And now we have rumors that Amazon is looking at opening their first store in Seattle. At first, you might think that an Amazon store will be going after a Costco given their breadth of products. But Amazon is smarter than this. They have gone to school on Apple and like Microsoft, understand that a retail storefront is actually a vehicle for servicing their customers who buy their dedicated technology products. At the center will be their Kindle line of course, and the store will be there to answer questions and help people get the most out of their Kindle eBooks and tablets. But it would not surprise me if this signals they might also do an Amazon branded smart phone and over time consider other Amazon branded products that these stores can sell and support.

    None of these moves to copy Apple with storefronts should be too surprising given Apple’s success in this area. But while Apple Stores do sell Apple products and are used to drive people into the stores to show off their wares, keep in mind that the role it plays in providing service and support is equally important to its success equation. And for Microsoft, Google and Amazon, and any other vendors who move towards vertically integrated products, if they really want to keep their customers happy and coming back for their branded products, they better be ready to provide the service and support that goes along with helping them integrate these products into their digital lifestyle. If not, that loyalty will shift to Apple, who has defined the consumer version of EDS and is well positioned to continue to take customers away from the competition.

    Amazon & the End of the Book

    With the end of the Nook for Barnes & Noble and doom and gloom on expected losses and lowered guidance for fiscal 2012, the company’s stock fell 18 percent. The Nook was the poster child of Barnes & Noble’s in-store growth strategy.

    Credit: Geek Sugar

    It’s nemesis, Amazon, is doling out cash to authors who make their e-books available exclusively on Kindle for 90 days. Kindle Direct Publishing (or KDP, for those in the know) has put aside at least $6 million in 2012. Books can be “borrowed” for free and authors receive royalty payments based on the popularity of their titles. This may be one more step towards the end of the bookshelf as we know it.

    While Amazon erodes the viability of the physical store, the Amazon storefront is fast becoming confusing to navigate, and it is a slippery slope for authors. If we let the age-old publishing process that allows a book to percolate (sometimes arduously) from manuscript to agent to editor to published work, to fade away, who will curate our content? Can the publisher and bookstore forge a new role in the value chain?

    No more rejection letters
    There is the age-old tale of the rejected writer: years of shipping manila envelopes to agents, years of returned manuscripts and polite decline letters from editors. J. K. Rowling’s agent submitted her wizard’s tale to twelve publishing houses and was rejected twelve times before she finally found a home. She is in good company as Stephen King and George Orwell were also rejected. One of Orwell’s critics wrote on the back of the Animal Farm manuscript, “It is impossible to sell animal stories in the USA.”
    As the blog “Literary Rejections on Display” writes: “Remember this: Someone out there will always say no.” This is no longer the case.

    Now there are aspirational tales such as Karen McQuestion who, after giving up on publishing her book, A Scattered Life, managed to self-published and sell over 35 thousand copies. There are stories of writers like Jim Kukral who went to the web to raise funds for his next book (remarkably $16,000 in a week). Kukral, author of This Book Will Make You Money says, “The walls are crumbling down, and aggressive and smart entrepreneurs are running through the gates to grab their share of self-publishing gold.”

    But is this new business model sustainable? Is this the inevitable revolution of the masses against the traditional publishers? (Publishers, who many feel are removed from the new realities of digital publishing )

    The answer is no.
    According to R.R. Bowker, a publishing industry analyst, self-published titles in the U.S. nearly tripled to 133,036 in 2010 and will continue to grow. Like the flood of self-published Apps in the iTunes Store, there is a point where the author can no longer be found amidst the huge numbers of books being published. Finding a publisher becomes the easy part. Selling and driving profit becomes impossible.

    Self-publishing your first novel and hoping that it reaches a mass audience is effectively the same as the delusionary garage app developer who decides to develop a game and post it to iTunes inspired by the success of Rovio’s Angry Birds. While Peter Vesterbacka, Rovio’s Chief Eagle, is touting his line of Red Bird sweat shirts, the developer’s app will be buried deep beneath the other one million assorted apps waiting for success.

    The book is lost and the digital bookstore is becoming increasingly crowded with vanity press. With triple-digit growth in self-publishing it is difficult to know where to go to find an audience, and writers are flummoxed. With the surge of books self-published on the on Amazon’s storefront readers are flummoxed about where to go for quality content.

    So how does the writer reach an audience? Amazon offers new reach and readers. But who is curating the explosive proliferation of content? What we collectively do not seem to understand is how the industry’s shifting roles are undermining the value chain for both the writer and the reader.

    After years of battling the demons of book store conglomerates and then cloud commerce and eBook business models, the industry is teetering on reinvention.

    We all know that what Amazon calls “pro-consumer” has been a major business disruptor for bookstores and now shoe, apparel and electronic stores. Could Amazon be simply using the book to build its m-commerce empire? Is the book industry a necessary sacrifice: mobile commerce road kill?

    Book Countdown
    Here are the modified Cliff’s Notes on how the book industry turned on its ear:

    1. Bad-Boy Barnes & Noble: In the 90’s Barnes & Noble opened up superstore after superstore across America. They become the Wal-Mart of books, with the same vendor-facing attitude. Publishers were forced to grin and bear the harsh Barnes & Noble business terms: challenging discounts, sling-shot mechanize return policies, and more

    2. Amazon Cloud: Ten years later, Amazon reinvented book browsing and shopping, and Barnes & Noble opened coffee shops and began selling household furniture. Smaller publishers and independent bookstores began to vanish.

    3. The eBook: In 2007, we saw the first Kindle, the harbinger of a new power game and more importantly a new relationship with the mobile consumer. The Kindle became the new storefront further threatening the first market disruptor, Barnes & Noble. In order to promote its Kindle device, Amazon sold electronic books below wholesale prices. A tactical loss. Owning the commerce platform was the ultimate reward for Amazon.

    4. Macmillan’s Counter Attack: This revenue model is understandably sub-optimal for the publisher. Led by New York-based Macmillan, the industry challenged Amazon’s hostile business model. Amazon pulled Macmillan content from its site. Macmillan held ground. Amazon caved. Round one.

    5. Vanity Press: In the traditional publishing relationship, the writer should expect approximately a 7.5% royalty for paperback books and for digital, 25% of net receipts (which is the 70% that publisher receives from the retailer.) Amazon offers “publish direct” capability for writers on a 70/30 royalty share across the Kindle, Amazon Cloud, and the free Kindle apps. Direct is an attractive option.

    The creative → agent →publisher → distributor relationship become dis-intermediated. Touted thriller-writer John Locke joined the Kindle Million Club (authors who have sold over a million books). And then there is the tenacious Amanda Hocking, who became a successful self-published author after receiving multiple rejections from traditional houses. (However, the Million Club is an elite club, and I would hazard a guess that there are many other would-be writers that will never go beyond vanity press.)

    6. Slippery Slope: Book stores (Barnes & Noble) and publishers (the Perseus Books Group) launch self-publishing eBook services (PubIt! and Argo Navis respectively) with similar flattering revenue shares. With all stakeholders playing all the roles, the value chain is breaking up.

    7. The Kindle Fire: Combining commerce with the immersive Kindle experience is the final frontier. Layering in Cha-Ching into the armchair reader is a natural and powerful evolution of the bookstore. Amazon is so confident that they are selling the unit at a loss ($199 for $210 unit cost)

    8. Kindle Owners’ Lending Library: Amazon Prime members who own a Kindle can “borrow” one title per month, from this expanding library for free. Presently, there are a limited number of books available; Amazon has not received publisher consent to include titles from many publishers. In some cases, Amazon is simply paying the wholesale price for the book each time somebody borrows it.

    This is Napster, the original peer-to-peer music file sharing service, but legal and underwritten by Amazon. The Authors Guild naturally has harshly criticized this business model.

    Is this an eight-bullet epitaph for the book publisher? John Biggs blogs nostalgically, “While I will miss the creak of the Village Bookshop’s old church floor, the calm of Crescent City books, and the crankiness of the Provincetown Bookshop, the time has come to move on.”

    Move On? The question is where to.

    What is the beleaguered publisher’s new role? (Guaranteed the solution is not for the publisher to go digital by offering multimedia extras such as video and audio commentary with their eBooks.) The publisher can:

    1. Taste Management: The publishing industry can retain its credibility as the purveyors of content. The publisher is providing rich content and is in the best position to build a long-term relationship with the customer, selling targeted stuff to this person, not once but many times.

    2. Drive Subscription: Learn from mobile commerce. The mobile content aggregator never sold one ringtone (too much work for the publisher and for the buyer). The mobile content aggregator sold a subscription. The mobile consumer paid for music curation. (And a pretty penny at that.)

    Perhaps we need to reconsider the idea of buying a book. Perhaps we should be buying a content subscription to chapters instead of books. Or see the book as a modern Dickensian novel serialized in mobile monthly installments.

    3. Sell non-traditional: Fight Amazon in the cloud, not the store. Publishers need to find ways to sell digital content into competitive storefronts. The publisher needs to work closely with the remaining terrestrial booksellers to help them sell into their digital storefronts.

    Publishers need to be aware that the 2010s are eerily reminiscent of the music industry in 2000’s. Books have changed. Reading and commerce behavior has changed. Publishers need to reaffirm their value proposition and find a way of reintroducing their mission critical role into the digital mall.

    Why Amazon is Not the New Apple

    Over the last few months I have heard and read many comments about the idea that Amazon is the new Apple. In fact, in a very good piece in Forbes, E.D. Cain asks if Amazon is the new Apple directly. He makes some good points to suggest that Amazon is very much following in Apple’s footsteps and even has created some innovations of their own with their price check mobile app and their Kindle book purchasing process.

    But I believe the answer to this question is no, Amazon is not the new Apple. The reasons for this are many. Now, don’t get me wrong. I have great respect for Amazon and Jeff Bezos. However, Jeff Bezos’s is not the second coming of Steve Jobs and he would be the first one to tell you that. Amazon’s business is very different from Apple’s and though they have some similar goals, such as creating an ecosystem of products and services for their customers, their approaches differ greatly.

    Perhaps the most glaring difference is Apple’s total approach to the market. Most importantly, all of their hardware, software and services originate inside Apple. They write the OS so they can customize hardware to be maximized around their proprietary OS platform. Amazon, as well as all of the other vendors competing with Apple, must rely on Google or Microsoft for their code and are always at a disadvantage to Apple in this area.

    Also, Apple has all of their design in-house led by recently Knighted Sir Jonathon Ives. Most of the vendors have to rely on ODMs for their products and this too is a disadvantage when it comes to industrial design and its integration with their software offerings.

    While Amazon is the world’s greatest retailer, Apple’s stores are re-writing the rules of technology retailing around the world. You buy from Amazon if you know exactly what you want since you can’t touch or feel the products online. But the reason that Apple is driving millions of people into their stores around the world is that Apple knows full well that the majority of potential users are not tech literate and need help buying exactly what they need.

    But one thing that really distinguishes Apple from Amazon and their competitors, is that Apple is a leader and all of the others are followers . This started when Apple introduced the Mac itself and decided to use the 3.5 inch floppy in the Mac and made their competitors kill the 5.5 inch floppies back in 1985-1986. Apple was the first to put a CD Rom drive in Macs in 1989 and ushered in the era of multimedia computing. By 1992, all PCs had CD Roms inside. In 1999 Apple added color to PC cases and created the all-in-one PC. Now all PCs have color and all-in-ones rule the desktop market. Even more recently, Apple created the first real “ultrabook” with the MacBook Air and now everyone is chasing them again.

    Apple’s genius is also in re-inventing products, which continues to reinforce their leadership position. They did not invent the MP3 player. They did however re-invent it. They did not invent the Smartphone. They re-invented it. They did not invent the tablet. They re-invented it. And in each of these product categories, they force their competitors to play catch up.

    What’s more is that Apple casts a long shadow in this area. A more current example is the hybrid computing. In my 2012 predictions, I stated that we should see many hybrids (laptops with screens that come off and double as tablets) this year. But, many of the vendors I talk to who have hybrids in the works have told me that their biggest fear is that Apple will do a hybrid and do it so well that it will force them back to the drawing boards and put them behind, even though they thought they would be ahead. Now, nobody even knows if Apple is doing a hybrid but just the threat of Apple doing one strikes fear in their competitors.

    But in the end, the fact that Apple continues to play a major leadership role in the industry is the real reason Amazon and other companies, who might like to think that they could become the next Apple, are still only followers. It is unclear to me if Apple will ever give up that role given their complete control of their ecosystem and the rich talent they have inside the company. But until another company can create this same dynamic, I suspect that there will not be another company that can lay claim to being the next Apple.

    Gaming AMD’s 2012 Strategy

    AMD intends to pursue “growth opportunities” in low-powered devices, emerging markets and Internet-based businesses.

    There’s an awful lot of mis-guided analysis wafting about regarding AMD’s new strategic direction, which the company says it will make public in February. This piece is to help you (and me) sort through the facts and the opportunities. I last took a look at AMD’s strategies earlier this year, available here.

    Starting With the Facts

    • AMD is a fabless semiconductor company since 2009. The company depends on GlobalFoundries and soon Taiwan Semiconductor to actually fabricate its chips;
    • In its latest quarter, AMD had net income of about $100 million on $1.7 billion in revenue. Subsequently, the company announced a restructuring that seeks to cut costs by $118 million in 2012, largely through a reduction in force of about ten percent;
    • AMD has about a 20% market share in the PC market, which Intel says is growing north of 20% this year, largely in emerging markets;
    • AMD’s products compete most successfully against rival Intel in the low- to mid-range PC categories, but 2011 PC processors have underwhelmed reviewers, especially in performance as compared to comparable Intel products;
    • AMD has less than a 10% market share in the server market of about 250,000 units, which grew 7.6% last quarter according to Gartner Group;
    • AMD’s graphics division competes with nVidia in the discrete graphics chip business, which is growing in profitable commercial applications like high-performance supercomputing and declining in the core PC business as Intel’s integrated graphics is now “good enough” for mainstream buyers;
    • AMD has no significant expertise in phone and tablet chip design, especially the multi-function “systems on a chip (SOCs)” that make up all of today’s hot sellers.

    What Will AMD CEO Rory Read’s Strategy Be?

    I have no insider information and no crystal ball. But my eyebrows were seriously raised this morning in perplexity to see several headlines such as “AMD to give up competing with Intel on X86“, which led to “AMD struggling to reinvent itself” in the hometown Mercury News. I will stipulate that AMD is indeed struggling to reinvent itself, as the public process has taken most of 2011. The board of directors itself seems unclear on direction. That said, here is my score card on reinvention opportunities in descending order of attractiveness:

    1. Servers —  For not much more work than a desktop high-end Bulldozer microprocessor, AMD makes Opteron 6100 server processors. Hundreds or thousands more revenue dollars per chip at correspondingly higher margins. AMD has a tiny market share, but keeps a foot in the door at the major server OEMs. The company has been late and underdelivered to its OEMs recently. But the problem is execution, not computer science.
    2. Desktop and Notebook PCs — AMD is in this market and the volumes are huge. AMD needs volume to amortize its R&D and fab preparation costs for each generation of products. Twenty percent of a 400 million chip 2011 market is 80 million units! While faster, more competitive chips would help gain market share from Intel, AMD has to execute profitably in the PC space to survive. I see no role for AMD that does not include PCs — unless we are talking about a much smaller, specialized AMD.
    3. Graphics Processors (GPUs) — ATI products are neck-and-neck with nVidia in the discrete graphics card space. But nVidia has done a great job of late creating a high-performance computing market that consumes tens of thousands of commercial-grade (e.g., high price) graphics cards. Intel is about to jump into the HPC space with Knight’s Corner, a many-X86-core chip. Meanwhile, AMD needs the graphics talent onboard to drive innovation in its Fusion processors that marry a processor and graphics on one chip. So, I don’t see an AMD without a graphics component, but neither do I see huge profit pools either.
    4. Getting Out of the X86 Business — If you’re reading along and thinking you might short AMD stock, this is the reason not to: the only legally sanctioned software-compatible competition to X86 inventor Intel. If AMD decides to get out of making X86 chips, it better have a sound strategy in mind and the ability to execute. But be assured that the investment bankers and hedge funds would be flailing elbows to buy the piece of AMD that allows them to mint, er, process X86 chips. So, I describe this option as “sell off the family jewels”, and am not enthralled with the prospects for success in using those funds to generate $6.8 billion in profitable revenue or better to replace today’s X86 business.
    5. Entering the ARM Smartphone and Tablet Market— A sure path to Chapter 11. Remember, AMD no longer makes the chips it designs, so it lacks any fab margin to use elsewhere in the business. It starts against well-experienced ARM processor designers including Apple, Qualcomm, Samsung, and TI … and even nVidia. Most ARM licensees take an off-the-shelf design from ARM that is tweaked and married to input-output to create an SOC design, that then competes for space at one of the handful of global fab companies. AMD has absolutely no special sauce to win in the ARM SOC kitchen.To win, AMD would have to execute flawlessly in its maiden start (see execution problems above), gain credibility, nail down 100+ design wins for its second generation, and outrace the largest and most experienced companies in the digital consumer products arena. Oh, and don’t forget volume, profitability, and especially cash flow. It can’t be done. Or if it can be done, the risks are at heart-attack levels.

    “AMD intends to pursue “growth opportunities” in low-powered devices, emerging markets and Internet-based businesses.” One way to read that ambiguous sentence by AMD is a strategy that includes:

    • Tablets and netbooks running X86 Windows 8;
    • Emerging geographic markets, chasing Intel for the next billion Internet users in places like Brazil, China, and even Africa. Here, AMD’s traditional value play resonates;
    • Internet-based businesses such as lots of profitable servers in the cloud. Tier 4 datacenters for Amazon, Apple, Facebook, Google, and Microsoft are a small but off-the-charts growing market.

    So, let’s get together in February and see how the strategy chips fall. Or post a comment on your game plan for AMD.

    My Experience with the Kindle Fire and Nook Tablet

    I’d like to start this topic off by making a point. The way most reviewers review technology products is helpful for those to whom technology is well understood and non-threatening. However, I would argue, that the way most reviewers review and compare products is not helpful for the way the average non-techie consumer processes information to make an informed buying decision. In all reality, the group that I am speaking of, the non-tech elite, most likely don’t read any of the reviews from tech sites anyway. Instead they talk to trusted friends and family and more importantly they go into stores and feel the products out for themselves.

    That being said, those consumers who are interested in either the Amazon Kindle Fire or the Barnes & Noble Nook Tablet are not first and foremost shopping for a tablet (to them a tablet is an iPad). They are in fact shopping for an e-reader, that happens to have a few more bells and whistles but first and foremost a good e-reader. Clayton Christensen said it best in the Innovators Dilemma “consumers hire products to get jobs done.” Consumers interested in either the Kindle Fire or Nook Tablet are interested in hiring either of those devices to get the job done of reading electronic books, magazines, and periodicals. Therefore as point number one both devices should first be judged or “reviewed” on the basis of how good of an e-reader they are. Having the ability to play a few games, browse the web, access movies and videos, etc are all secondary features to wanting the best e-reading experience.

    Related: Why Kindle Fire Reviews are All Over the Place

    Instead of reviewing these two devices in the traditional sense, I wanted to focus on my experience and observations using them both side by side. To do that I decided to focus my thoughts on comparing the two devices based on the most common use cases I see the average, non-techie, non-early adopter, mass market consumers interest in these two devices to be.

    Reading E-Books

    Both are capable e-readers. Neither are the best pure e-readers on the market but as far as e-readers “plus” go they are both capable. I will, however, say that the Nook Tablet is the better e-reader of the two. Reading a standard book is a check box for both devices. However the differentiator as a reader for the Nook Tablet is the experience reading and interacting with many of their interactive books and magazines.

    What Barnes & Noble has been doing by making magazines more interactive, with extra features and bonus multimedia content, or social sharing of reading material is the best example of what the future interactive reading experience should be with this type of content.

    One of my favorite reading experience features are “enhanced” books. These are books that more and more publishers are releasing that include extra content like exclusive videos, audio, as well as other interactive content related to the chapter.

    Many of the magazines on the Nook Tablet also features enhanced experiences. People magazine for example, one of the more popular magazines in the United States, has loads of bonus and interactive content built into their Nook magazine reading experience. Besides People Magazine, since I don’t read it, the one I found quite compelling was Sports Illustrated. SI includes many new interactive features not found anywhere but the Nook platform. Again many of these same interactive or enhanced magazines exist for the Nook Color but they are much snappier, crisper, and generally better on the Nook Tablet.

    These enhanced magazines, books, and more are one of the reasons the Nook Color was hailed by nearly all the “tech reviewers” as the best color e-reader out there, hands down. The Nook Tablet has brought all those same features into the Nook Tablet with a better screen and more snappy experience with the content.

    One final point. I was able to accomplish something that is near impossible with the iPad and the Kindle Fire on the Nook Tablet, and that was read outside in the sunlight. Despite the bright and vivid display of the Nook Color you can also easily read and use it in sunlight. It is the ONLY tablet on the market today where this is possible.

    As a Media Player

    If you are an Amazon Prime subscriber at $79 dollars a year then you have access to about 10,000 streaming movies and TV shows accessible on the Fire. Interestingly, the catalog offered for streaming to Prime subscribers is nearly identical to the streaming offered through Netflix’s on demand streaming service. Therefore if you are a Prime subscriber and not a Netflix subscriber than the Kindle Fire would make more sense. However if you are a Netflix subscriber the streaming catalog options are nearly the same, therefore accessible on both devices. Therefore what Prime video streaming gives you on the Fire you get on the Nook Tablet with Netflix.

    A point on the Netflix experience, the Nook Tablet includes a secure silicon layer that is required for movie studios to allow movies to be played in higher resolution. Therefore in a side to side comparison of Netflix video the Nook Tablet looks better.

    Truthfully I do not use Amazon’s services for music and videos so it is hard for me to qualify the value in the Fire’s access to their music and movie stores. What this brings out though is an interesting observation due to the fact that I am a heavy iTunes user and deeply entrenched into Apple’s ecosystem. In that regard the Nook Tablet actually fits better into Apple’s ecosystem than the Fire does. It is easier for me to move existing non-DRM music, movies and more to the Nook Tablet due to its larger storage capacity and easy of sync with my MacBook Air. Interestingly enough, the Kindle Fire didn’t even come with a PC sync cable, perhaps for obvious reasons.

    The last thing I will say on this subject is that much of the Amazon media player experience is based on a streaming model. For that reason Amazon’s media services are good but only work when on a wi-fi network. Because the Nook Tablet has more local storage and allows me to easily move music, movies, and more to the device I can use it to consume media even when not connected to the Internet.

    Running Apps and Browsing the Web

    Realistically 90 percent of the apps in the Android App store are no good anyway which is why I don’t make a big deal of a lack of apps in the case of the Fire or Nook Tablet. What matters more importantly is that the right apps, or quality apps are there. Keeping in mind if a plethora of apps is your reason for buying a device there are other options. Again emphasizing my assumption that for those truly looking into the Fire or Nook Tablet a plethora of apps is a moot point. More importantly do they have the right apps?

    In that regard they both have the most important app for the 7″ form factor, the web browser. Because of that both access Facebook, Twitter, and many popular services delivered through the web. In fact with the 7″ and above form factor many of the most popular apps are better in the browser. It should also be noted that the Kindle Fire does not actually have the Facebook App, what it has access to is the HTML version of the Mobile Facebook site, which look nearly identical to the Facebook app on smart phones.

    Both have e-mail apps but I don’t believe e-mail is going to be in the top several jobs these devices are hired for so I didn’t set my email up on either of them. I have a smartphone and a PC for that job.

    The Ecosystem

    Ed Baig in USA Today said it best:

    The fight between the companies largely comes down to which ecosystem you want to buy into, because books you purchase from one provider are not compatible with the other.

    Which ecosystem is the right question. In my opinion, as I stated above if you are in Apple’s ecosystem, using iTunes to manage media, the Nook Tablet will fit better in that ecosystem. If you are already heavy into Amazon’s ecosystem, meaning you are a Prime member, use Unbox, and a number of other Amazon’s services then obviously the Kindle Fire is a better bet.

    Barnes & Noble doesn’t have a way to get first release movies and DVD’s yet on the Nook Color where Amazon does. If renting, buying or streaming first run movies is important to you the Kindle Fire has a solution today where Barnes & Noble will most likely have one in the future.

    One other point about the ecosystem I would like to point out. Barnes & Noble has created a more family and kid friendly experience with the Nook Tablet. When looking for content–like apps–for example I can actually filter my choices to look for apps that are good for kids. I can even easily pick different kids age groups and search for apps for kids within that age range. That was a very cool experience, especially since I have my kids use all my technology quite a bit. I like the family friendly approach integrated into the Nook Tablet.

    Again it all comes down to which ecosystem you have bought into or want to buy into.

    The Price

    Many in the media have knocked the Nook Tablet for its $249 price point. It appears those people believe that cheaper is always better. I wholeheartedly disagree. I believe consumers perceive value in a number of different ways and the price tag is one of many points to consider. Because of that, if a consumer was genuinely shopping and compared the visual experience of both devices as a reader, video player, and web browser they would conclude the Nook Tablet is a better experience and thus worth the extra $50.

    The faster processor, more memory, vivid screen and more make for a more pleasant experience when using the Nook Tablet over the Kindle Fire.

    Conclusion

    I’ll be completely honest, if I had to choose to spend my own money on the Kindle Fire or the Nook Tablet, I would choose the Nook Tablet. Based solely on using it as a reader for books, magazines, periodicals and more. The Netflix experience and my ability to move my own personal music and videos on it and the responsiveness and speed of the device present a much more elegant experience.

    The big question you may be asking is now that I have used both side by side what would I recommend to friend and family to buy for this holiday season. My honest answer is this: If you are an “Amazonite” meaning you buy all your e-books from Amazon and also use their unbox services for music and video then the Kindle Fire makes the most sense. On that point however, if you are sold out to Amazon and want something that does more than be an e-reader, I strongly recommend waiting for version two of the Kindle Fire expected in the first half of next year. The Kindle Fire is “good enough” at all the things expected however it is not the best at any single experience in the e-reader “plus” category.

    If you simply want the best e-reader plus for this holiday season then I recommend the Nook Tablet as it retains many of the great features of the Nook Color but is snappier and with a better display. If the $50 price tag is too hard to swallow, and again you want the best e-reader with some extra features then I strongly recommend considering the Nook Color at $199.

    The Tech.pinions Amazon Kindle Fire Review Roundup

    Well the reviews are out and it seems like they are mostly positive. Other than a few user interface gripes it appears most reviewers believe the Kindle Fire to be a worthy Android tablet competitor but not much of an iPad competitor. From our own experience with the Kindle Fire we tend to agree on both fronts.

    For an in depth analysis on the Kindle Fire and the potential impact on the tablet landscape check out Tim’s analysis after using the Kindle fire both on the road and at home.

    Here are some of the more notable reviews and a few of their highlights.

    Joshua Topolsky at the Verge

    This isn’t an iPad-killer. It has the potential to do lots of things, but there are many things I have yet to see it do, and I wonder if it will get there given the lean software support.

    It’s a well thought out tablet that can only get better as the company refines the software. It’s not perfect, but it’s a great start, and at $200, that may be all Amazon needs this holiday shopping season.

    Tim Stevens at Engadget

    The Kindle Fire is quite an achievement at $200. It’s a perfectly usable tablet that feels good in the hand and has a respectably good looking display up front.

    When stacked up against other popular tablets, the Fire can’t compete. Its performance is a occasionally sluggish, its interface often clunky, its storage too slight, its functionality a bit restricted and its 7-inch screen too limiting if you were hoping to convert all your paper magazine subscriptions into the digital ones. Other, bigger tablets do it better — usually at two or three times the cost.

    So, the Kindle Fire is great value and perhaps the best, tightest integration of digital content acquisition into a mobile device that we’ve yet seen.

    Mark Spoonauer at Laptop Magazine

    The Kindle Fire isn’t an iPad killer, but it is a killer deal. At $199, it’s really hard to beat the package Amazon has put together. Assuming you’re willing to carry a smaller 7-inch device, it combines an easy-to-use interface and one-tap access to loads of content in a well-built design

    Lance Ulanoff at Mashable

    It is the closest tablet I’ve seen yet to an Apple iPad: a consistent, well-thought out marriage of hardware and services that offer an almost frictionless environment for app purchase and content consumption. This is why the iPad has been so successful and why I think the Kindle Fire, despite its imperfections, is a winner, too.

    Perhaps the most powerful review comes from David Pogue of the NY Times. Powerful because out of all the reviews his may be the most influential with the everyday consumer. Therefore Pogue’s review may arguably be the one most mainstream consumers, who don’t read gadget blogs, may read and use to inform their decision about whether to buy a Kindle Fire.

    David Pogue of the NY Times

    Your heart leaps. “This is incredible!” you say, contemplating the prospects. “It’s like an iPad — for $200!”

    But that’s a dangerous comparison.

    For one thing, the Fire is not nearly as versatile as a real tablet. It is designed almost exclusively for consuming stuff, particularly material you buy from Amazon, like books, newspapers and video.

    Most problematic, though, the Fire does not have anything like the polish or speed of an iPad. You feel that $200 price tag with every swipe of your finger.

    The Fire deserves to be a disruptive, gigantic force — it’s a cross between a Kindle and an iPad, a more compact Internet and video viewer at a great price. But at the moment, it needs a lot more polish; if you’re used to an iPad or “real” Android tablet, its software gremlins will drive you nuts.

    Then again, Amazon tends to keep chipping away at the clunkiness of its 1.0 creations until it sculptures a hit. Or, as they say in the technology business: “If you don’t like the current crop of e-readers, just wait a minute.”

    The Kindle Fire may pose a real test for Amazon. This device is clearly a risk on their behalf advancing away from their traditionally successful Kindle E-reader model. Obviously Amazon is not standing still and the rumors are they will have more tablets in 2012. The first Kindle’s evolved quite quickly and Amazon embraced their customer feedback and refined the Kindle experience. If they want to take the Kindle Fire to the next level they will need to do the same with their tablet strategy.

    Despite what the reviewing media says the real test is with the mass market. We will know what mainstream consumers think about the Kindle Fire soon enough.

    Analysis: How Amazon’s Kindle Fire Will Impact The Tablet Market

    I have been using the Kindle Fire for a while now and I am quite impressed with this new entry into the tablet space. Although one of Amazon’s major goals was to make this a great eBook reader, the fact that it runs on Android and can run Android apps, has a Web browser, and developers can write apps specifically for the Fire inevitably makes it a solid entry in the tablet market.

    Some of my research colleagues had originally placed the Kindle Fire in the eReader category, but this does the Kindle Fire a grave injustice. This is a tablet in the full sense of the word and it will especially be competitive with Android tablets. Also, it is very clear that this is positioned only for a consumer audience. Unlike Apple’s iPad, this product would not translate well into a business markets as it stands today. A side note to this is that since it does have an LED screen, reading a page in direct sunlight is as difficult as it is on an iPad now.

    I will not be doing a full review in the technical sense of the Kindle Fire as many of the gadget blogs will do that better than I could. However, before I discuss its impact on the market, I do want to point out a few things I like with the Kindle Fire and at least one thing I think would make it better in future versions.

    When you pick up a Kindle Fire, the first thing you will notice is how brilliant the screens color and resolution is. It appears that Amazon spared no expense with this component. And its touch sensitivity is as good as I have seen on any of the higher end tablets on the market today. I have been using the iPad from day one and I have a personal preference for a tablet with a larger screen, but I was surprised to find how much I enjoyed reading books and perusing Web pages on this 7 inch form factor. Also, apps like Pulse worked the same as on my iPad, only in a smaller window.

    But this also underscores a key issue that consumers need to think about when buying a Kindle Fire. This is really optimized for content consumption and NO content creation. When Apple introduced the iPad, they emphasized its use in content consumption. But within six months on the market, users began to find ways to optimize it for productivity and in some cases, real content creation. In fact, I often use the Zagg Bluetooth keyboard with my iPad and use it as a laptop replacement on many short trips I take. I would never consider doing something similar with the Kindle Fire.

    While the Kindle Fire can run localized apps, especially downloaded games, its 6.5 gigs of actual available flash memory means you are highly limited on what can be downloaded for use when disconnected. However, when connected to a WIFI network, the Kindle Fire really shines. You can watch streamed video, stream music in real-time and gain access to apps with Web content.

    One small gripe I have is where they locate the on/off switch. It is on the bottom of the device and is awkward to turn on and off in this position. On the next model I hope they put it on the side where it would be easier to access.

    The Kindle Fire is the best of the 7-inch tablets bar none. The Android tablet vendors should be very concerned. At $199 Amazon is most likely taking a loss on each product but making it up when people buy books and other products in the Amazon ecosystem.

    These devices tied-to-distinct eco-systems underscores another truism that I believe will drive market demand for tablets and other types of digital devices in the future. In fact, I’m not sure that there is an actual tablet market. Rather, the actual revolution-taking place in our tech industry is that the real market drivers going forward will be for broad ecosystems of apps and services that are optimized for various devices, one of which is a tablet, that can be plugged into this ecosystem and are designed to work especially well with these devices.

    If you have used multiple Apple devices, such as the iPod, iPhone and iPad, this should have become obvious already. While you may be attracted to Apple’s cool looking products, they are really front ends to a rich ecosystem of apps and services that are designed to work extremely well with these dedicated Apple devices.

    The iPod, iPhone and iPad are important vehicles designed to work perfectly with Apple’s ecosystem. And now, Amazon’s Kindle Fire is their first real hardware play that follows in Apple’s footsteps. Using this logic, I believe that Amazon will someday create other devices optimized to fully tap into their ecosystem such as a 10 inch tablet, perhaps a Netbook or UltraBook or even a smart phone. Keep in mind, this is not that big a stretch in thinking. If Amazon is smart, they find ways to drive more people to their ecosystem with optimized devices and expand their growth and fortunes in the same way Apple is doing with their device and ecosystem strategy.

    Interestingly, although it uses Android, this is not an Android ecosystem they are tapping into. This is an Amazon walled garden that just happens to be on top of Android. And from this point on, it is their hardware, their software, apps and services they will build on. I once thought that Amazon did not want to be in the hardware business and really wanted to just get more vendors backing their ecosystem. But just like Apple, I believe they now realize that the idea of letting others take advantage of their ecosystem would be foolish. Instead, I believe they will build up their hardware prowess and use this as a key way to lock or tie their customers to a total hardware, software and solutions strategy going forward. And, I firmly believe that in the very near future, people will be buying into ecosystems of hardware, software and services, not devices, especially ones that are not optimized to work well with specific rich ecosystems.

    So how will the Amazon Kindle Fire affect the market for Tablets?

    As I stated earlier, it will have a major impact on Android tablet vendors. At the very least they will be forced to try and get their devices into Amazon’s price range. However, Amazon’s ecosystem is a key part of the Fire’s draw and in that sense, it leaves most of the Android competitors out in the cold. Yes, these competitors can tap into the Android world of apps, but they are still fighting Google on version provisioning as well having to work with an app store that is not curated. Also, most of the Android tablets coming to market are all the same, while Amazon differentiates through their eco system.

    As for Windows 8 tablets, our current view is that these will be targeted more towards business customers. But unless Microsoft develops a rich ecosystem of their own for the Windows 8 world, Amazon and Apple will always have an edge.

    As for competing with Apple, the Kindle Fire is not a threat at all to Apple’s iPad in business. To date, this is still the market leader and it won’t get any serious competition, especially from the Windows 8 camp, until at least Oct of 2012.

    But at the consumer level, the Kindle Fire is clearly going to be a competitor to the iPad in the sense that it is going after a consumer audience. And at $199.00 it gives the consumers a serious option in tablets for use for content consumption.
    I also believe that it could force Apple to bring the price of the iPad down faster than they had planned.

    But there are three key things to consider when comparing the Kindle Fire against the iPad. I see Apple’s iPad as representing the top end of the market for tablets and one that is becoming a cross functioning device. That means it is good for content creation and great for content consumption. And with its 9.6 inch screen and over 140K apps written just for the iPad, even with its pricing today, it is and will continue to be a market leader in tablets. And I believe they will still sell 15+ Million per quarter at least through 2012.

    And while the Kindle Fire is aimed at the same consumer audience, Amazon will need to enhance their eco system consistently if they plan to really compete with the iPad in the future. Also, its 7-inch screen and form factor may be a drawback to some who really do want a larger screen in their tablet. But that said, the Kindle Fire will be a huge hit for Amazon and I would not be surprised to see them sell close to 4 million during the holiday quarter.

    The second thing to consider is that there is a very large audience who are OK with what I call “good enough” tablets. While many consumers may still be lusting after and iPad, its current price remains a drawback for some. And while the Kindle Fire is smaller than the iPad and has less in the way of apps and even services, it will be good enough to many and serve as their first real entry into the world of tablets.

    The third thing to remember is that the tablet market is in its infancy and I believe could eventually be bigger than the PC market. Key reason is the ultimate portability of the tablet and as we get more ubiquitous connections, this will be an ideal form factor for millions of people who want a device with a larger screen then their smartphone with them when they leave the house or hit the road.

    Just as the iPad became the major disruptor in mobile computing, I expect the Kindle Fire to set the tone for low-cost tablet devices and be the leader in this price category for quite a while thanks to the Kindle Fire’s high quality design that is tied directly to an Amazon Eco system of software, apps and services.

    The Kindle Fire and Nook Tablet Will Not Slow the iPad

    Philip Elmer-DeWitt reported on the Fortune blog about data released suggesting the potential impact of the Kindle Fire on iPad sales. The data originated from ChangeWave and points out several key findings from their survey of “early adopter types.”

  • 5% of those surveyed said they had pre-ordered or were very likely to buy Amazon’s new Kindle Fire, exceeding the 4% who said they were very likely to buy the original iPad in 2010.
  • 26% of those 5% said they would delay or put on hold the purchase of a new iPad.

    •  
    I have to question the FUD this data is causing for a number of reasons. First of all the survey was conducted with early adopters (early adopter types actually whatever that is). Early adopters are not the mass market and nor do they represent the mass market. Early adopters shop for technology with a very different mindset than mass market consumers. Because of that it is hard to use data only taken by early adopters.

    Taking the data one step further only 5% surveyed said they pre-ordered or were likely to buy the Kindle Fire. If we do the math, 5% of the 2,600 early adopters types they surveyed means 130 people out of 2,600 said they pre-ordered or were very likely to buy the Kindle Fire. Keep in mind these are early adopters and I’m guessing most if not all of those 2,600 surveyed owned iPads.

    Now 26% of the 130 (5%) said they would delay or put on hold the purchase of a NEW iPad. That means 33.8 people of the 2,600 early adopters surveyed said they would delay or put on hold the purchase of a NEW iPad. When we look at the data under that lens the headlines becomes less ominous for the iPad.

    Now I do expect both the Kindle Fire and the Nook Tablet to do well. However, the fundamental difference is that those two products are competing with each other rather than with the iPad.

    Brooke Crothers at CNET provided research from eDataSource that stated preorders of the Kindle Fire were tracking to exceed one million. I have seen a number of credible reports forecasting Amazon to sell 4 million Fire tablets during the quarter. Most recently the DigiTimes today reported that Amazon has upped their orders to 5 Million due to demand.

    Both those numbers are plausible but the point needs to be made that those customers are either early adopters or customers who were in the market for a Kindle in the first place. I have a hard time believing that mainstream consumers (not early adopters) who were strongly considering an iPad have changed their mind and now going with the Kindle Fire or Nook Tablet.

    IDC’s forecasts for readers in 2011 are 16.2 million, I actually believe that is low, this category is still hot with a lot of consumers. My point, however, is that those consumers in the market for ereaders like the Kindle and the Nook are not in the market for iPad’s, yet at least.
    I’ll end my take on this data with this. Brooke also quoted a separate report today from Rodman & Renshaw’s Ashok Kumar claiming that iPad momentum is slowing. Asok stated:

    “Our checks indicate that production volumes have been scaled back due to moderating sell-through. We estimate that iPad volumes in the current quarter will be 12-13 million units, down from previous estimates of 14-15 million.”

    I think he is wrong but even if he isn’t that would still be more iPads in a quarter than Apple has sold before still putting them over 30 million iPad’s sold in calendar, not fiscal, 2011. That’s still a lot of iPads.

    [VIA Fortune, CNET]

    How Amazon’s Silk Will Treat Your Privacy

    Debates in tech land all too often degenerate quickly into name-calling cat fights among partisans. So it’s rare, and gratifying to see two sides naturally skeptical of each other engage in a dialogue that actually enlightens rather than inflames.

    The Electronic Frontier Foundation,  reflecting the views of many privacy advocates, raised concerns about the amount of personal information Amazon.com might capture from users of the Silk browser in the new Kindle Fire. Amazon has responded  in detail and the analysis of the response by EFF not only goes a long way toward allaying those fears but serves as a model of how this sort of dialog should work.

    Silk bothered privacy (and security) advocates because everything entered into the browser in its default mode passes through Amazon’s servers, allowing Amazon to capture vast amounts of personal information. This is done to let most of the heavy lifting of rendering web pages be done on Amazon’s servers, allowing   a much faster browsing experience.

    In its response to EFF, Amazon made several key points:

    • A setting on the first page of Silk preferences will let users bypass Amazon;s servers, trading privacy for performance.
    • All encrypted sessions  (anything with an HTTPS address) will link Silk directly to the remote server, bypassing Amazon. This means that Amazon will not see usernames, passwords, and other sensitive information from secure sessions.
    • The amount of user information logged will be limited and logs will be retained for only 30 days. Amazon told EFF that there is no way to associate logged information with a specific Amazon account.
    EFF still has some concerns about the amount of data Amazon can collect and the danger that aggregated data might still be linked to specific individuals. But, EFF said in its conclusion, “We are generally satisfied with the privacy design of Silk, and happy that the end user has control over whether to use cloud acceleration. But this new technology highlights the need for better online privacy protections. As companies continue to innovate in ways that make novel uses of–and expose much more personal data to–the internet cloud, it’s critical that the legal protections for that data keep up with changes technology.”
    Amazon could have saved itself a bit of trouble by releasing this information earlier, but since Fire won’t ship until next month, no damage has been done. Kudos to both Amazon and EFF  for bringing out this important clarification.

    A $299 Amazon Kindle Fire- What It Could Be

    Last week the industry was engrossed in the Amazon Kindle Fire launch. There was lots of excitement, speculation and 299kindle2many questions on it. The $199 price point was one of the biggest points of excitement, particularly in that it was less than half the price of the Apple iPad 2. What could a $299 Fire look like? What features and use cases could it support over the $199 version?

     

    Design Strategy

    Every company needs a focused strategy, particularly in the risky tablet market,  and Amazon surely has one.  Amazon must balance inexpensive tablet “must haves” with ways to monetize their store.  That’s why consumers can buy an inexpensive tablet and Amazon doesn’t need to make 40% gross margins.  Their bet is that Fire consumers will buy their books, movies, TV shows, music, magazines, and maybe even durables.  So everything needs to lead to an Amazon purchase or be a required element.

    Operating System

    Amazon will stick with Android 2.X as their base as it’s the only OS that Google has opened up.  Google has yet to open up Honeycomb, even as Ice Cream Sandwich (ICS) is around the corner.  If Google opens up ICS, they would want to move there for many reasons.  First, they get access to larger screens, 10″ all the way to the TV.  Secondly, they would need to ask less of the developers to modify their apps to work decent on a 10″ display.

    Display

    The display would most likely be a 10.1″, 1,280×800, IPS display.  This is where the current cost break-point is right now.  The other possibility is 1,024×600 display, given these are shipped en-masse on netbooks and mini-notebooks.  Amazon could claim “HD” with both, but with x800 it would be “more HD accurate” given it could support real 1,280×720 (720P) movies.  Also at x800 they can claim that the resolution is better than the iPad 2 at 1,024×768.  That is, until the rumored iPad 3 comes out with Retina Display.

    Web Sites versus Apps

    One challenge Amazon will have with a 10.1” display and Android 2.X is the app’s appearance. It’s a stretch for Android 2.X apps to even look good on a 7” display. Many of them are blocky, because they were designed for a maximum of 5” displays. At a minimum, Amazon would need to write custom apps for mail, calendar, and address books. I can see Amazon encouraging users to use web sites via Silk versus apps as well and they would need to beef up Silk’s browser to do this. Today’s tablet browsers have limitations, limitations Amazon’s Silk could remove. One simple issue is tablet browser’s ability to access the file system. The iPad’s browser, for example, is unable to upload photos to Picasa. This is why you need an app for that. Silk could conceivably remove the barrier.

    Processor, Storage and RAM

    While it doesn’t necessarily need more of this for a better experience, the competitive optics demand a bump, particularly on storage. There’s no reason to move beyond the OMAP 4, particularly if the $199 Fire has the TI 4430, which can easily do 1080P HD video.  RAM could very well stay at 512MB, but for the optics, would most likely move to 1GB.  Storage would definitely bump beyond 8GB to at least 16GB.  Apple has made storage the break point for iPad, and Amazon knows they cannot be at a disadvantage, even with Amazon Cloud Storage as the backup.

    Living Room Entertainment with Remote Control

    Here’s where it gets interesting.  The $199 Fire is designed for individual video content.  The step-up $299 could be positioned as the living room alternative to the “over the top” set top box.  By providing a simple HDMI 1.4 port out and a remote control, consumers could watch all the 1080P TV and movies from Amazon Prime and Amazon VOD.  Consumers are always looking for a way to justify that extra $100 and this alone could be the reason.  To accomplish the same this on the iPad, the consumer needs to buy the expensive HDMI connector and have an iPhone, load the “Remote App”, and setup AirPlay.   The other Apple alternative is to buy an Apple TV, and extra $99.  Amazon could have a cost and simplicity message over Apple in the living room.

    Optional Living Room Dock

    Taking the living room video usage to the next level, Amazon could offer an optional $29.99 dock which makes living room video even easier.  Place the $299 Fire into the dock and it gets power, HDMI out to the HDTV, speaker out, and Ethernet.  This would be an easy way to connect the Fire to the TV.  It also provides another justification to buy this over an “expensive” $499 tablet that doesn’t provide this option.

    Camera and Mic Enable “Entertainment Assistant” App

    If the $299 Fire has a front facing camera and microphone, Amazon could “listen” or “watch” the content you are consuming in your living room. This would be user-driven as not to be “creepy”. Think of it as Pandora for all types of content, including TV shows and movies. The user could point the Fire to the TV, press a button and a few seconds, an in-context search result would result. In addition to the news and social media results, it would also show relevant results from the Amazon store.

    All it would take is for Amazon to index what they already have. They have access to 18M pieces of content; TV shows, movies, songs, books, and magazines. With Silk, they will also know every web site you access, where you shop, what you buy and how long you stay there.

    clip_image004

    Even without any access to the rich Amazon data, simple Evernote was able to extract “Dallas” from this photo. Google Goggles is able to extract “Fox Sports” too. Now imagine this capability with Amazon’s access to basically all content and wherever you have ever browsed.

    Camera to Improve Shopping

    At $299, consumers will expect a camera, maybe even two.  What’s its primary role?  Shopping, of course.  What?  Yes.  Like I said before, everything needs to lead to the Amazon store.  The camera could serve as an augmented reality try-before-you-buy feature.  Amazon is great at selling physical books, DVDs, electronics, and toys, but what about items that are better sold in a retail store?

    • Clothing: In conjunction with the TV and remote, see what different clothes look like on you and get the perfect fit, too.  The camera is taking videos of you and overlays the clothes on you.  What to change the color or size?  Just use the remote.
    • Jewelry: Watches are interesting.  Will the face be too big on the wrist?  Is it too masculine or feminine?  Use the Fire to see what it looks on you before you buy it.
    • Shoes: Afraid of getting the wrong size or that on you it looks ugly? Print the Amazon Sizing Grid.  Take the picture with the Fire of your feet on the grid.  See how it looks on you; get the right size shoe, including the correct width.  Now that it has this much info, why not now introduce custom show sizes?
    • Home: How will those towels look in your bathroom?  That patio furniture on your patio? That lamp on your end table?
    • You get the idea; use the camera with augmented reality to make the shopping experience more fun and with less risk.

    Camera for Universal Videoconferencing
    What if your parents use Skype and you use Apple Facetime? One of you needs to change programs or you don’t get to communicate with each other. Amazon, with its data center prowess, could become the “universal adapter” for video services, and make money doing it. Skype, FaceTime, Google Video, Yahoo Messenger, it doesn’t matter. If you use Amazon’s service, you can connect to all of them. A stretch? Maybe, but remember, via Silk they know every site you go to and have a login as well. What’s to stop from the “embracing and extending” if they can further lock in customers?

    A Note on Living Room Gaming

    Amazon could relatively easily use the dock above, the included remote to enter living room gaming.  But they have a big issue.  Android 2.X looks horrible on the big screen.  Even Angry Birds.  I have tried racing games, too.  So Amazon would need to further break, or fork, from stock Android to make this happen.  Developers would need to do this, too.  When or if Google opens up Ice Cream Sandwich could be the time this happens.  I cannot imagine Amazon going after living room gaming without ICS, although tempting.

    Conclusion

    I have no inside information whatsoever on any future Amazon Kindle Fire.  BUT, it only makes sense for Amazon to introduce a higher-priced, higher-feature tablet to intercept the 10″ competitors.  Also, given Amazon’s business model, these features must drive Amazon.com store revenue, too.  This $299 Fire as I have laid out does all of these things.

    The New Kindles=Razor and Razor Blades with eBook Readers

    The new Kindles, with prices at $79 and $99 finally introduces the concept of the razor and razor blade business model to eBooks. We are all familiar with the idea of razor companies creating very cheap razors and then getting people to come back and buy a never-ending supply of razor blades to use for shaving.

    We in the tech world already have a product that fits a similar model with printers and the continual need for ink. Printer makers make next to nothing with the printer hardware and make all of the money on the ink.

    Now Amazon is blazing new trails with their two new eBook readers at price points that are almost give away the hardware. This is quite an interesting turn of events in the eBook reader market. When the Kindle first came out it was $399. The only people who bought it at that price were what we call early adopters. However, they became hooked on this eReader and once the first Kindle established that this product category was not a fluke, the competitive market kicked in. Within two years of the Kindle’s release, the competitors undercut the Kindle’s price by as much as $200.

    But as more and more people bought the Kindle, Amazon was able to get better deals from suppliers and their costs came down as well. Last year they lowered the Kindle’s price, with ads to as low as $129. But with the new Kindles they break the magical $100 dollar price barrier and in turn have basically introduced to the market the eBook equivalent of the razor and razor blade business model for electronic publishing.

    This is especially important since they have over 1 million commercially published books for purchase as well as hundreds of thousands of free books to add to their overall eBook distribution. What this does is virtually assures that Amazon maintains its lead as the world’s top eBook publisher.

    This move should not be too much of a surprise though. The basic law of manufacturing is that the more you make, the lower the prices of the product. Once Amazon was building a million units at a time, they started getting preferential pricing on every component. Over the life of the Kindle Amazon has sold millions of these devices thus making it possible to finally break the $99 dollar barrier.

    Although some smaller brands had already broken $99 dollars, it is Amazon’s move now that changes the game completely. The end result is that the market will move even faster from physical books to electronic books, magazines, newspapers and more. Many more people will, at this price, be enticed to jump on the eBook bandwagon and you can bet that both of these models will be hot sellers for the holiday.

    But the fact that Amazon is driving this razor/razor blade model into ePublishing is very important. It will set the tone and define the role of standalone eBooks and push the concept of ePublishing into the mainstream even faster than many of us had expected.

    It is a very good move for their business and it solidifies Jeff Bezos’s overall goal to become the worlds #1 eBook publisher and it will more than jumpstart the next generation of electronic publishing by making book reader affordable to all.

    Unanswered Questions about the Amazon Kindle Fire

    Amazon threw their axe into the tablet sea Wednesday with the launch of the Amazon Kindle Fire. On paper, the Kindle Fire seems like a killer value proposition. For $199, you get continuous computing access to 18 million books, movies, TV shows, music, newspapers, unlimited cloud content storage, and fastest web browsing. And all this at less than half the price of the Apple iPad 2. There are a few important, unanswered questions that could determine whether that deal is too good to be true.

    clip_image002

    Delivered Responsiveness

    Amazon had a great showing at their launch event, but attendees weren’t able to freely touch the tablet themselves. Demos were carefully scripted that showed how good the responsiveness was. I remember how amazingly responsive the TouchPad tablet demos were, only to be disappointed at launch with the lags. The lags were quickly fixed with a patch a few weeks later, but the damage was done. Basic pinch, zoom, page turn, app load and app close must be responsive or it will just feel cheap. Buying a tablet with bad touch is buying a car with a loose steering wheel and a missing tire.

    Display Quality on Videos and Photos

    At 7”, to effectively see video content at the same size versus a 10” tablet, users must hold it closer to their face. Will we be able to see pixels? Hold the original iPhone close to your face, play a video, and you can see the pixels. That for me could be a deal breaker, but hey, that’s me. At $199, the Kindle Fire is a less considered purchase, but still considered. Heck, consumers return $5 food items because they didn’t like it, so don’t think they wouldn’t return a $199 Kindle Fire if it didn’t do what they expected.

    Video Content Quality

    I am one of the few people who own a Google TV. While I like the Amazon streaming service, it can get quite pixelated at times. It happens a lot more than it happens on Netflix, too, which leads me to surmise that it’s an Amazon issue. Bandwidth won’t be an issue on the downloaded content, but, again, what about the quality? I have downloaded movies from Amazon Unbox on my laptop and sometimes they are pixelated in spots. My laptop is 1366×768 on a large display and the Kindle Fire has 1024X600 resolutions at 7”, so probability will hopefully be small. The final question is how 16:9 content looks on a 16:10 display. Will there be black blocks on the top or bottom of the display or will the content be zoomed in and possibly blurry?

    Software Storage Footprint

    With 8GB of storage, users will need to be very choosy with what movies, TV shows, music, games, apps and app content they store on the tablet. So the software storage footprint gets important. For example, if it takes 2GB, that leaves 6GB left for apps and content. The Amazon Cloud storage is great, but who wants to be deleting and re-downloading songs and apps to make room for a downloaded movie or a game that requires a huge, secondary download after install?

    Let’s take a look on iTunes at the popular movie “X-Men: First Class”. It packs a 1.79 GB download. While I don’t think the Amazon “portable” version will weigh in at this size, users will still need to think about their storage, and that’s never good.

    Silk Web Acceleration

    Silk promises many things, and to the user it promises faster web page downloads for a more enjoyable browsing experience. It could, potentially, eliminate any browser compatibility issues with the device and a web page. For example, even if the Silk browser didn’t support  the latest or oldest web standards, by pre-rendering certain elements of the page, the user wouldn’t detect a thing, only that they can interact with the web page.

    clip_image004

    This begs about 100 questions, but I’ll leave that for another analysis. I do have a few I will highlight.

    • Privacy: Amazon knows everywhere I’ve been. Is there a way to opt out? How will it protect my personal information ?
    • Standards: Which will it support, which won’t it?
    • Security: Will it capture my passwords?
    • Control: Will user have any kind of control over which sites get “silked” and which ones don’t? I can’t expect Amazon to pre-render every site correctly, particularly the smaller ones.

    Conclusion

    On paper, the Amazon Kindle Fire appears to provide an exceptional value proposition for the consumer who is on a budget and cannot afford the iPad 2. There are, however, many unknowns that have yet to be determined that could impact the user’s experience. My experience with Amazon is that they under-promise and over-deliver. It’s been that way since their existence. I don’t think they are going to stop that given the importance of Kindle Fire to Amazon. I ordered mine within 5 minutes of the “doors” open up and I’ll hopefully have the answers to these questions above.

    What if Amazon Bought webOS?

    MobileBeat has an interesting article this morning reporting that Amazon is apparently in talks to buy webOS from HP.

    Credit MobileBeat
    Although this deal could make a fair bit of sense I don’t see the immediate need for Amazon. If they were to purchase webOS it would obviously be fully own the OS layer for their hardware and as I’ve speculated their hardware partners. Amazon however has customized Android to a degree that is basically their own custom operating system. So what they would get in webOS they basically already have with their fork of Android. Android has a thriving developer community already that can easily tap into the Amazon tablet where webOS is still attempting to gain traction with developers.

    It is interesting though, as MobileBeat is reporting, that Jon Rubenstein is on Amazon’s board. If HP truly was considering selling of the webOS technology Jon would know and be in a position to find it a good home, in which Amazon would be a good home.

    If HP is wanting to sell of webOS I agree with James Kendrick at ZDNET that HTC should buy it. So if this rumor is true, I hope it is not a back room deal but one that HP offers to others in the market who could also benefit greatly from webOS.

    If Amazon were to acquire webOS then it would solidify in my mind that they intend to license or give away their OS layers so other hardware manufacturers can make hardware build around Amazon’s services.

    Kindle Fire Threatens Google More Than Apple

    Much of the coverage of Amazon’s announcement of the Kindle Fire has, understandably, focused on the potential competition with Apple’s iPad. While the two products are clear competitive in the sense that some consumers will pick one and forego the other, it is entirely possible that Amazon will sell millions of Fires without making much of a dent in iPad sales.

    Kindle Fire photoA much more interesting issue is the impact of the fire on Google. At first glance, Amazon and Google are sort of partners in the Kindle project. The Fire runs on a version of Google’s Android software and Google is the default search engine on the tablet (a privilege for which Google is probably paying.) But a couple of things Amazon has done take aim at Google in ways that have to be causing some discomfort at the search giant, which is already facing serious challenges to its core businesses from Facebook.

    First, there’s the matter of Android. To understand what going on, you have to realize the distinction between “Android” and “Google Android.” Android started out as an open-source operating system, but Google has been progressively tightening controls.  To use any Google branding or to have access to Google services such as the Android Market or the Google Maps app, a manufacturer must meet Google’s terms and conditions. For the current Honeycomb version of Android, “Google Android” is the only option because Google has not released the source code.

    Amazon took a different route. Earlier versions of Android are freely available and Amazon took the code for Android 2.3 (Gingerbread) and modified it for its own purposes. This is perfectly acceptable and legal under the Apache 2.0 license that covers Android. It’s not clear how compatible the Fire software is with existing Gingerbread apps, but it is clear this is not a huge concern of Amazon–and that there is nothing Google can do about it.

    Google now faces the very real prospect that the first, and perhaps only, successful Android tablet, while built on a Google software platform, has nothing to do with Google. In particular, it does not use any of the Google services, other than basic search, that were Google’s rationale for building the Android platform. The Android business model was giving the software away, but making money off the users it delivered to Google services. Fire, however, is designed to use and promote Amazon’s services, not Google’s. In a very real sense, Amazon may just have stolen Android out from under Google’s nose as far as tablets are concerned.

    (Related: Amazon Plans on Stealing Android from Google)

    As Chris Ziegler writes on ThisIsMyNext.com:

    Amazon now stands poised to take one of Google’s most critical assets — Android — and turn it against them. Praise for the Fire’s deeply-customized version of Android 2.3 has been nearly universal, and make no mistake, there’s no going back; this is Amazon’s operating system now, built atop a road-tested core that Google served up free of charge.

    The other significant threat Google is Fire’s SILK browser. When running in its default mode, the browsers computational chores are split between the Kindle and Amazon’s Elastic Computing Cloud (EC2.) This architecture means that Amazon will be able to observe, and probably log, everything Fire users do on every web site they visit. (The SILK terms and conditions are silent on the uses that can  be made of this clickstream data beyond incorporating the existing Amazon privacy statement.)

    Amazon has built its business through deep analysis of the data it collects from users of its sites. But until now it, like Google and Facebook, only has access to the clickstreams users generate while on their sites. With SILK, Amazon can observe what users do on every site they visit. The privacy implications of this are a subject for another time, but the wealth of data could give Amazon and enormous commercial advantage.

    As Michael Mace writes on his MobileOpportunity blog:

    This will be a fun space to watch. Apple and Google will both feel pressure to respond to Silk to prevent Amazon from getting a decisive lead in mobile web apps.  Maybe just the threat of Silk will be enough to finally drive some innovation in the mobile web platform.

    I may be indulging in wishful thinking, but there’s a possibility that ten years from now we’ll look back on Silk as the single most important thing in today’s announcement.

    Or not.  It depends on what Amazon’s agenda is, and they’re not telling.

     

    Is There a Technology Race to the Bottom With Price?

    I have been surveying the collective schools of thought related to the Amazon Kindle Fire launch. One thing that many writing publicly on the matter emphasize is the price of the Fire and rightly so. $199 is an aggressive price but I would argue that price is not everything when it comes to personal technology.

    Those that incorrectly believe the Kindle Fire is a threat to the iPad use words like commoditization of hardware. Again the common logic is that because one competitor comes in at a lower price it will force the market down. This however is entirely incorrect.

    There will be some who try to compete on price with Amazon however they will likely fail and either lose a ton of cash attempting to compete or exit the tablet market entirely.

    Apple however has no need to get more aggressive on price with any of their products.

    Related Articles:
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    What is key to understand is that if Amazon did not have a robust services business as a retailer and distributor of digital media the Kindle Fire would not be successful even at $199.

    This statement is made clear in Jeff Bezos quote to Brad Stone in his Business Week Article.

    “What we are doing is offering premium products at non-premium prices,” Bezos says. Other tablet contenders “have not been competitive on price” and “have just sold a piece of hardware. We don’t think of the Kindle Fire as a tablet. We think of it as a service.”

    I have said before that the Kindle is to Amazon what a retail store is to Wal-Mart. The Kindle represents access to Amazon’s services.

    That philosophy is made clear when Bezos states that they don’t view the Kindle as a tablet but instead as a service.

    This backs up my point that without the backing of the Amazon services the tablet would fail even at $199. Subsidizing hardware in order to make up revenue on the services is a strategy employed by many. However it only works when a service powers the hardware.

    What Could Really Change the Game
    I’ve had this discussion lately with a few other analysts around whether or not Amazon ultimately wants to be in the hardware business. Right now they have to in order to gain market momentum and validate their service with hardware.

    What could be very interesting is if Amazon gave away or licensed their software for other tablet vendors. This would allow for hardware innovation in and around Amazon’s ecosystem. If the business model panned out Amazon could even include hardware partners in the services revenue over time. Amazon already has revenue sharing business models in place so this is not a stretch to imagine.

    Amazon does not have the desire or expertise to make extremely elegant hardware. Which is why it is interesting to think about the possibility of letting those who have hardware expertise design some innovative hardware around the Amazon software and services platform.

    Like Google, Amazon is a services company who thinks about hardware and software as a way to access their services.

    The other thing this strategy would do is put pressure on Google with Android. If Amazon’s Android fork can provide a better experience and economics for hardware partners and developers Android could be in trouble.

    Price is important but I contend it isn’t everything. Just because products are cheap it doesn’t mean they are quality in all aspects of experience.

    We will see what the reviews have to say once they actually get to review the Fire. My sense though is that everyone will make a bigger deal of the experience with the Amazon services over the hardware.

    Why Amazon’s Silk Browser is a Big Deal

    In my opinion what Amazon has created with their Silk browser is the most interesting part of their Kindle Fire announcement.

    One of the key reasons is because it is an example of the kind of differentiation I have been ranting about lately – especially around “tablets.”

    I have been writing quite a bit about my frustration with a dearth of differentiation by consumer products companies. One of the key points I have been hammering home is the need to bring something unique to the table when creating consumer products.

    Amazon has done just that with their Silk browser. Specifically what I mean is that they could have simply shipped any number of browsers on the Fire yet they decided to create their own. Why? Because no browser on the market fit their vision for a browser with an emphasis on consuming content and media tied specifically to Amazon’s cloud computing vision.

    That last sentence is why I feel Silk is a big deal for Amazon. Myself and many others tend to lean in the direction of our computing future taking place in the browser.

    Anytime I hear someone is working or releasing a browser I tend to look at it from the viewpoint of our future with a de-centralized computing platform where the browser is the new OS.

    Amazon may very well be looking to- and innovating for – the long term future with Silk. What’s more is they are bringing their own vision to the table with this browser. They are thinking about it in terms of their own unique cloud services.

    In fact what is very interesting about Silk is that I don’t believe it exists to differentiate Amazon’s hardware but rather to differentiate Amazon’s services.

    If that is true then what is to stop them from putting the browser on other platforms like Android, iOS, Windows or OSX? Nothing, and that is exactly what I think they will do.

    Amazon, I believe, is brilliantly going to create an ecosystem tied to their services and then release hardware agnostic software that uniquely take advantage of the breadth and depth of Amazon’s services.

    At a fundamental level this is also Google’s strategy, however at this point in time I feel Amazon has more to offer and a better chance at success. Not to mention more consumer trust.

    My analysis of what Amazon is doing with Silk is going to be an evolving one as I experience it more for myself and observe the decisions Amazon makes related to it.

    However for now by bringing a browser to market that takes advantage of key Amazon services that no other browser can do is a fascinating initial strategy.

    One of the reasons I say that is because what if Amazon doesn’t believe that a general browser is the browser of the future? Perhaps they can envision a future where consumers use multiple browsers to get differentiated experiences with services offered by companies.

    If the browser is the OS of the future then that could seem logical. We choose operating systems today based on our preference of UI, experience, etc and what if the same is true of browsers in the future?

    So Amazon focuses their browser around media consumption, publishing, reading, as well as customer loyalty to their services. Therefore when consumers want Amazon services they use the Amazon browser. When they want Apple services they use Safari, when they want Google services they use Chrome, and when they want Microsoft services they use Internet Explorer (a name I hope changes.)

    I use different apps for different tasks today so I don’t believe it is a stretch to think that I may use different browsers for different tasks or use cases in the future.

    In fact in this future it is possible for me to consume services from a range of different providers rather than simply commit to one service providers ecosystem.

    This is all theoretical analysis of course but I find it very interesting to think about related to the future of computing.

    Now back to present. Regardless of where Amazon goes with Silk in the future I do feel they are orienting themselves to take advantage of the cloud computing future in new ways. And specifically they are creating key hardware and software technologies that are setting the foundation for Amazon’s future as a services company.

    AWS: Amazon’s Secret Weapon

    Most consumers think of Amazon.com as a company that sells books and a whole lot of other stuff. But it is also a deep technology company that has turned its technology both into a product and a big competitive advantage.

    Amazon Web Services is a vast online computing infrastructure that Amazon both uses itself and sells to others. AWS began in 2006 as a way for Amazon to sell surplus storage as its Simple Storage Service (S3.) But it really blossomed when the company added Elastic Cloud Computing (EC2), which lets customers rent virtual servers.

    As AWS has expanded, it has offered increasingly sophisticated services that let companies create complete virtual data centers. Because of the ability to get up and running with no capital investment and to scale quickly and cheaply if demand takes off, AWS is immensely popular with web startups. Many established web businesses run on it as well and ithas just gotten approval for use with most unclassified federal government operations.

    The AWS user interface is something no one but a software developer should ever encounter, but the Kindle Fire can be tought of as a firendly face for the cloud services. The vast storage capabilities of S3 and the CloudFront content delivery network power Amazon’s streaming media capabilities. AWS also provides the storage and computing power that let you, for example, begin reading a Kindle book on a phone and download it to a Kindle device and pick up reading exactly where you left off.

    Others, such as Microsoft and, of course, Google, offer extensive cloud services. Apple is trying to catch up and I expect we will hear a lot more about iCloud as part of its iPhone announcement Oct. 4. But AWS’s extensive programming interfaces and Amazon’s experience in hitching its infrastructure to consumer services give it a unique leg up on the competition.

    And interesting test of just how big an advantage AWS is will come with the performance of the Kindle Fire’s Silk browser. Browsers have been the weak point of all tablets because the complexity of rendering complex modern web pages can overwhelm their relatively  limited processing power. This is why even tablets that claim to support Adobe Flash generally do so really badly.

    Silk splits the processing burden of rendering pages between the Fire and EC2, with much of the heavy lifting done in the cloud. Amazon officials were not very forthcoming about the technical details of Silk and were not very generous in demonstrations of its abilities, so I am going to reserve judgment until I have a chance for a hands-on trial.

    If it works as promised, it could be an important, unique advantage for Amazon. Among potential competitors, only Google has to sort of cloud infrastructure that is required, but Google doesn’t make devices and the structure of Android would make it very hard for it to achieve the tight device-cloud integration needed to make something like Silk work.