Amazon’s Tablet Is No Threat To Apple, It’s A Huge Threat To Google

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Last September, we got a tip from a source that Amazon was preparing a tablet that would run Google’s Android operating system. The source was a good one — they had also correctly called Amazon releasing their own Android app store. It took a while, but it looks like they nailed this news as well. Today, The Wall Street Journal reports that Amazon plans to release an Android-based tablet by October.

Of course, this news has been rumored for much of this year. No less than Amazon CEO Jeff Bezos has hinted at the possibility in recent months. But today’s report brings some tangible details for the first time. And that’s why the conclusion (and title) WSJ has drawn is surprising. “Amazon to Battle Apple iPad With Tablet”, is the headline. But as I read it, this tablet — at least the first iteration — won’t be much competition for the iPad at all. Instead, it could step in and own a market that Google has failed to secure: Android tablets.

Let’s consider the information out there. Amazon will enter this space for the first time this fall. Their tablet will apparently have a 9-inch screen (comparable to the iPad’s 9.7-inch one) and will run an un-specified version of Android. It apparently won’t have a camera. And it won’t be designed by Amazon. Instead, they’ll outsource both the design and manufacturing. In other words, it’s probably going to be cheap — at least in build quality, if not in price.

Why is Amazon outsourcing the entire development? Likely because they wanted to get the tablet done as quickly as possible. WSJ also reports that Amazon is working on another version that they’re designing themselves, but that will not be ready until next year. So this first version will be a sort of placeholder until their own version is ready.

The only way this sounds like it can compete with the iPad in any way is if it’s extremely cheap. Like $299 or less cheap. But can Amazon really make a 9-inch multi-touch screen color tablet for that cheap? Unless it’s an absolute piece of crap, that seems unlikely. There’s a reason why all other tablet manufacturers are having problems getting their tablets down to even the key $499 price point. Apple can do this because they have years of experience — and most importantly, component deals — thanks to the iPod, iPhone and other devices. Others do not. Amazon does not. Sure, they have the Kindle. But a full-fledged tablet is a whole different ballgame.

So either Amazon releases a tablet that is around the same price as the iPad — and potentially more expensive — or they sell each one at a huge loss. As they’ve proven with their digital content stores, such as the MP3 one, they’re willing to do this. But in hardware, they haven’t done this with the Kindle. Margins are thin, but the device still generates revenue. To beat the iPad in price, I have to believe that Amazon would have to take a large loss on each device sold.

Maybe they are willing to do that. After all, Apple and Amazon are in many ways the opposite. Apple pushes digital content in order to sell devices. Amazon could now be pushing devices to sell digital content. But if that really is the battle, Apple has the winning hand there. The margins are much better on Apple’s hardware sales than on Amazon’s content sales. Amazon would not be able to afford subsidizing their hardware indefinitely.

But even if Amazon is able to release a relatively cheap tablet this fall, the major question will remain: why would I buy this instead of an iPad? Amazon’s tablet will have access to the same apps that current Android tablets do — and very few of those are optimized for, or work well on tablet devices. And what happens if Apple surprises everyone with a “Retina” display iPad before the end of the year? We first reported on this being Apple’s plan back in February. The latest word is that such a device may be delayed a bit by manufacturing issues, but it’s still in the plans for this year. We’ll see.

They key point is that Amazon’s first tablet, any way you slice it, sounds like just as much of a threat to the iPad as all the other Android tablets have been so far. That is to say, no threat at all. Instead, it will likely be more of a threat to their own Kindle device (it’s hard to make the “this device is no good for reading” argument out of one side of your mouth while saying the opposite out of the other). And much more so, it will be a huge threat to Google.

Back in March, when Amazon released their own Android Appstore, I made the case for why Amazon now had to release their own Android-powered devices. Simply put, the process to install the Android appstore is way too complicated, Amazon needs devices they can ship with the store pre-installed. And more importantly, their stores pre-installed. As in, any device they ship is going to be filled with Amazon to the brim. That includes the ability to sign in to your Amazon Prime account the buy things with one click.

When that happens, Amazon will have an Android tablet that is more compelling than any other Android tablet on the market on day one. There are plenty of whispers of Google planning their own “Nexus” tablet for later this year when the Ice Cream Sandwich variety of Android is ready to go, but the consumer ease-of-use that Amazon can offer will likely trump anything Google puts out there.

That’s why Google should be scared shitless of this Amazon tablet. Thanks to the “openness” of Android, Google has handed Amazon the keys to the Android kingdom. Amazon is going to launch a tablet that runs Android, but it will be fully Amazon’d. It will use Amazon’s Appstore, it will use Amazon movies, it will use Amazon books, it will use Amazon music, etc. Google will have no control over this, even though it will be the seminal Android tablet. That would be terrifying for any brand.

Sure, you could argue that an Amazon Android tablet will still benefit Google because it will lead to more Google searches. But who says that will be the case? If I were Microsoft, I’d go all-in when negotiating with my Seattle technology neighbor to get a Bing search deal done for this new tablet.

Google has been able to control Android so far while keeping it “open” because they offer carrots to partners to stay with them for most services. Those carrots are Google apps, Google branding, early access to new Android builds, etc. But Amazon likely won’t care about those things. They could be the first major player to use Android that Google has absolutely no control over.

This is going to be fascinating to watch. All I know is that if I were Apple, I wouldn’t be too concerned by this Amazon tablet. Next year, maybe. But not now. But if I were Google, I’d put down those Android carrots I’ve been offering up and go find my stick.