What I Like About Amazon’s Kindle Strategy

on September 7, 2012

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.