Battle Of The Tablet Business Models: Lessons Learned And A Look Ahead


We’ve been looking at the tablet business models of Apple, Amazon, Google, Samsung and Microsoft. Today we wrap up the series by seeing what lessons we have learned and by asking ourselves what the various business models can tell us about the future of tablet computing.

Lessons Learned

Lesson #1: Subsidized tablet business models are a niche

The subsidized business models of the Amazon Kindle Fire and the Google Nexus 7 are very limiting. They can only be sold where their content is sold, they can only be sold to consumers who readily pay for content or consume relevant advertising and they will have little appeal to business, government or education. Even if they are fantastically successful within their confined market space, their markets will have little overlap with the tablets that focus primarily on the importance of apps.

Lesson #2: Subsidized tablet business models need to be measured differently and judged appropriately

We tend to judge all things tech by the number of units sold or by overall market share. We should, of course, be focusing on profit instead. Profit is the goal and profit is the standard by which tablet business models should be measured.

The subsidized tablets of the Amazon Kindle Fire and the Google Nexus 7 need to be judged, not by sales, not by market share, but by the profits generated by the sale of content and advertising. In a subsidized business model, nothing else matters.

Lesson #3: Conflicting business models are a sign of weakness

With the Nexus 7 and the Surface tablet, both Google and Microsoft have reversed their licensing models and embraced an integrated approach. There is nothing wrong with adjusting one’s business model to fit the times. There’s a lot wrong with having two conflicting business models.

Lesson #4: Platform Matters

Apple has the strongest tablet platform, by far, and it shows in their sales and in their profits.

Amazon seems to understand platform. However, subsidized business models seem geared more toward content than apps. The Kindle Fire is only a year old. We will have to wait and see how the Amazon platform develops.

Google doesn’t seem to get platform, even now. Their weak platform has not hurt them in phone sales (yet) but it’s crippled their tablet efforts. And with the introduction of the Google Nexus 7, Google has made it clear that they think that content, not apps, is what matters most.

Samsung almost certainly understands platform, but they have no control over the Android operating system nor do they control the way Android content and apps are sold. Their only choice is to suffer or get out.

Microsoft gets platform all too well but they are so very late to the game. The Windows Phone 7 platform went nowhere and Microsoft has to be terribly concerned that the Windows RT and Windows 8 tablets may share the same fate.

Lesson #5: Skate to where the puck is going to be

When the market is underserved, products move toward integration. When the market is over served, products move towards modularization. It seems to me that part of the problem with most of the current tablet business models is that their respective companies have misidentified where the market is over served and where it is underserved.

Apple: In my opinion, Apple is on the right path. Tablet hardware, software, and content distribution are becoming “good enough” and are in danger of being commoditized. Apps and ecosystem are still under serving the market and have a lot of room for growth. Apple is adding value and differentiating itself from its competitors by integrating hardware, software, content and apps into a single, cohesive ecosystem.

Apple’s problem is that they have traditionally not been very good at internet services. Look at MobileMe, Ping, Siri, Maps, etc. And internet services are the key to the future of mobile computing ecosystems.

Jonathan Ive is a genius who can design Apple’s hardware but he can’t design a database system that will work with iCloud. Tim Cook’s supply chain prowess turned Apple from a very good company into a great company. What Apple may need to thrive in the future is a Tim Cook for internet services.

Amazon and Google: I think that both the Amazon and Google subsidized strategies are fundamentally flawed. They are creating an integrated hardware and software product designed to add value via the sale of content. But content distribution has already been commoditized. It makes no sense to subsidize hardware sales in order to enhance content sales if the margins on content are de minimis.

Samsung: The problem with the current Samsung tablet model is two-fold. First, their hardware is only one part of the value chain. They do not control the software, content, apps or overall ecosystem. Second, the area where they add value – hardware – is rapidly moving towards “good enough” and commoditization.

Microsoft: In my opinion, Microsoft’s business model is focused on the wrong part of the value chain or stack. Windows RT and Windows 8 is all about creating a superior operating system. But the operating systems currently available from Google’s Android and Apple’s iOS are already more than good enough for most consumers. Microsoft is pouring all of its efforts into an area where consumers are already satisfied or over served. Windows 8 may or may not be a better mobile operating system than either Android or iOS but it is not so much better that it will compel the bulk of consumers to switch to it.

The Future

We obsess over tiny diferences between the hardware and operating systems of the various competitors but it is business models that dictate success or failure. Until those business models change, Apple has, and will retain, the lead in tablets. Both Amazon and Google have chosen to ghettoize their tablets. Their inability to generate substantial profits will be obscured by irrelevant sales numbers. Samsung tablets are nowhere and they have nowhere to go.

Microsoft is trickier. It first has to overcome the hurdle of creating a virtuous platform cycle. If developers can’t attract customers – if customers can’t attract developers – then nothing else matters because the platform will go nowhere. However, if Microsoft can overcome this initial, all-important hurdle, then they have a chance to be relevant. We should be able to gauge just how relevant they’ll be by this time next year.


The future of tablets will be determined by their respective business models. Yet most of the current business models are not even directed towards that future.

Battle Of The Tablet Business Models: Samsung Galaxy Tab


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

4.0 Samsung Galaxy Tab


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.”

Samsung licenses its software for free from Google and, like Apple, they make their money when people buy their tablets. Unlike Amazon and Google, Samsung makes little or no money from the sale of content or apps. Unlike Microsoft, Samsung makes no money from the licensing of an operating system.


Samsung tablets provide value in (at least) three ways.

First, their hardware is generally very good. It may or may not be of the quality of Apple but it is certainly more than good enough.

Second, since Samsung gets their operating system software from Google for free, and since Samsung is an extremely efficient manufacturer, they can often offer their tablets for lower or comparable prices.

The above advantages are somewhat mitigated by the fact that Samsung has to pay Microsoft a licensing fee for the use of Android. Also, Apple’s supply chain prowess has allowed Apple to order supplies in such great quantities that they’ve been able to keep their prices quite low. Still, on the whole, Samsung tablets are almost always available at equal or lower prices than that of the competition.

Third, Samsung has excellent distribution. This should not be underestimated. The greatest device in the world is of no value to the consumer if it’s not sold in their country or if it’s priced out of their financial reach.

Samsung’s tablets provide value because they are well made, inexpensive (but not cheap) and available most everytwhere.


Despite Samsung’s many strengths, their business model for tablets is a disaster and it must frustrate the life out of them. Samsung’s hardware, prices and distribution are excellent but it just doesn’t matter.

First, Samsung gets their Android operating system software from Google for free, and while Android has proven to be an excellent smartphone operating system it is not optimal for tablets. There is a fundamental difference between an app designed for a smaller (3.5 to 5 inch) screen and an app designed for a larger (9.5 to 11 inch) tablet screen. Google’s stubborn refusal to optimize their software in order take advantage of the tablet’s larger screen size has crippled the larger screened Android tablets. For more on this, please see my article entitled: “With Apps, Size Matters.”

Second, while Apple, Amazon and Google make money from the sale of content and apps, Samsung does not.

Third, since Google supplies the Android operating system to Samsung, Samsung has no control over the store and no control over the platform. Samsung can do nothing to make the store more attractive for their customers or make the platform more attractive for developers. Samsung is wholly reliant upon, and wholly at the mercy of, Google. This is even more unfortunate for Samsung because Google has proven to be an indifferent steward of the Android store and platform.

Fourth and finally, with the introduction of the Google Nexus 7, Google – the licensor of the Android operating system software – is now a direct competitor to Samsung. And since Google has decided to subsidize the price of their product, they’ve completly undercut Samsung’s tablet business model. Unlike Google, Samsung can’t make up lost sales revenues with the subsequent sales of content and apps. With Google selling the Nexus 7 for $200, Google has made it all but impossible for Samsung to sell their $400 to $500 tablets.


Samsung is a proud and powerful company but I don’t know how much longer they can continue to compete in the tablet market. They are being attacked from above by Apple, below by Amazon and Google and soon Microsoft will be entering the fray. And Samsung has no competitive advantages. They can compete against Apple on hardware and software but not on ecosystem. They can compete against Amazon and Google on hardware and software but not on price. And the things that Samsung needs to change in order to be competitive – content, apps, ecosystem – are entirely out of their control.

Samsung is simply in a no-win situation.


We’ve now looked at the Apple, Amazon, Google and Samsung tablet business models. Next week, we look at Microsoft’s Surface tablet and wrap up the series.