Will an Amazon tablet be Android’s White Knight? by Seth Weintraub @FortuneMagazine March 10, 2011, 9:05 PM EST E-mail Tweet Facebook Google Plus Linkedin Share icons Forrester says an Amazon tablet would be well-positioned to compete with iPad. Forrester, click to enlarge Forrester analyst Sarah Rotman Epps issued a report today, detailing her analysis on the iPad challengers in the market. She sees three major miscalculations in iPad competitors’ market strategies with high pricing being the biggest: Price: Consumers’ perception of tablet cost is shaped as much by the $249 Barnes & Noble Nook Color as it is by the iPad, whose models range from $499 to $829: The average price that consumers self-report that they expect to pay for a tablet has fallen from $504 to just $257 between June 2010 and January 2011, according to Forrester’s surveys. Distribution. Apple has the ideal distribution model: In addition to selling at Best Buy, Target, Wal-Mart, and carrier stores, Apple owns its own channel. The Apple Store serves as a laboratory for consumers to learn about the device and get support after they’ve bought it. More consumers considering buying a tablet say they would prefer to buy from an electronics store like Best Buy (40%) than a carrier (11%), and yet many tablet competitors, including Motorola and Samsung, are relying primarily on carriers to sell their devices Product differentiation. Many of the tablets coming in 2011 are differentiating with 4G compatibility, which the second-generation iPad does not have. They’re also adding USB, HDMI, and SD card ports, as well as Flash support, which differentiates them from the iPad but not from each other. True differentiation is subtle and will be difficult to convey to consumers, such as Toshiba’s video autocorrect feature that makes YouTube look better than it really does. And marketing tablets like PCs — focusing on feeds and speeds — won’t threaten the aura of the iPad, which has marketed itself as a solution, not a technology. I tend to agree with that assessment overall. On price, I’ve talked before how there is significant opportunity in the $200-$400 range for a lower end tablet that doesn’t necessarily have all of the bells and whistles of an iPad 2. Besides Archos, no major manufacturers have attempted to get a tablet in this range (unless you count Barnes and Noble). And, none of the current manufacturers, with products out on the market (from iPod sized players to 10 inch screen and above) seem to want to build and market a device without 3G/carrier ties. Apple’s AAPL 3G iPad starts at $629, but they sell many more Wifi-only models, which now can be had for as low as $499 (or $399 for last year’s). Also, with most smartphones now having the ability to tether in one way or another wirelessly, 3G options make even less sense. Epps’ point about carrier tie-ins putting off customers couldn’t be more true. The last thing I want is another two year commitment when picking up a tablet. Yet, Dell DELL , Samsung and Motorola MMI don’t seem to want to sell their devices outside of carrier showrooms with carrier subsidized options. Differentiation will be hard for iPad’s competitors because of the huge lead time Apple has amassed. New devices (indeed device categories) take time to come to market and the one year old iPad certainly caught everyone sleeping. Keep in mind, the iPad didn’t just magically appear on the assembly line last year. Apple spent years developing the hardware and the software that goes into it. In fact, Apple CEO Steve Jobs told an audience this year that the iPad was actually developed before the iPhone – which itself started development around 2005. Clearly work and feedback (and the App Store ecosystem) on the iPhone certainly helped the iPad as well. So, with less than a year of tablet development under their belts, Google GOOG and its manufacturing partners aren’t hitting home runs. The Galaxy Tab is getting a small following and has many distribution points but it is more a huge phone than a tablet in the iPad sense (this isn’t necessarily a bad thing. Many people, myself included, enjoy the mid range portability of the Tab.) Dell’s Streak efforts are largely the same with lower price point/quality products as Samsung’s. As for 10-inch devices, Motorola’s XOOM effort was clearly pushed way ahead prematurely. The hardware lacks the 4G chips and needs to be sent back to the shop to get these installed. I don’t think I’ve ever heard of a device being released with a planned recall before. The software is even more beta than the hardware with reports of crashes and non-working components abound from reviews. A major differentiator, Adobe’s ADBE Flash, is also conspicuously absent. There is some good news, however. These exact same issues faced Google’s Android phone efforts in 2008 and they were able to eventually build what would become the most popular smartphone OS on the planet. When Android head Andy Rubin talks about the original G1 phone that was released in 2008, he says the software wasn’t 1.0, it was 0.8 – meaning it wasn’t ready for primetime. I think if the XOOM weren’t sitting on store shelves right now, he’d probably say the same thing about it. There is plenty of room and time for improvement and there are many differentiators from which Android can benefit. Price, as the chart above shows is the biggest. Also, screen size is important. Who does Forrster’s Epps’ think can execute on Android? Vizio is one player who could. They’ve become the number one supplier of HDTV in just a few years and they have both Android Tablets and phone coming soon. If anyone can get a great product at a great price, Vizio is certainly a contender. Sony should also be playing in this space. It has the media empire and the eReader background as well as a portfolio of entertainment products that could be folded into an Android tablet. With their Ericsson partnership they already have deep experience with Android as well. And there is always Microsoft, who somehow rated highest in Forrester’s survey of OSes people would want on a tablet. Focus Groups not #Winning I’m reminded of the Henry Ford quote: “If I had asked my potential customers what they wanted, they would have said faster horses” Forrester is going off the board as well with their tablet pick. She says the market is ripe for disruption from Amazon AMZN . Sure, Amazon doesn’t make an Android tablet and has no plans to do so, publicly anyway. But the conditions are all perfect. I’ve heard Amazon his hiring Android developers like crazy but that could be for the AppStore they are opening shortly. Epps’ other rationalizations: The motivation to counter Apple’s threat to its business model. By implementing onerous rules for eBook sellers and other content providers that require in-app payments, Apple may have created its own worst enemy.11 Now Amazon has the motivation to launch its own device, where it will have more control over payments and customer data. A pricing model that could work. The mass market of consumers wants cheap tablets. But carrier-subsidized tablets won’t sell as well as smartphones. Amazon could offer a different model — selling a tablet at or below cost and making up for it by selling content, as it does with the Kindle. Unlike the Kindle, however, consumers would need to foot the bill for 3G/4G service, as they would be using far more data than eBooks alone require. The brand, content, and channel to pull it off. More consumers considering buying a tablet say that they would consider Amazon (24%) than Motorola (18%). Amazon’s content assets include not only media (Kindle eBooks, MP3s, videos, and games) but also eCommerce goods — 50% of current tablet owners say they use them to research and purchase products.12 Amazon.com is also a channel in which a sizable segment of consumers feel comfortable purchasing electronics: 28% of consumers considering buying a tablet say they would prefer to buy it from an online retailer like Amazon. Amazon got the Kindle experience well before the iPad was released. It is likely they are working on a full-fledged Android-ish device to go along with their Android store. Remember, Amazon doesn’t have to partner with the OHA or Google to use the Android OS to build a tablet that run Android and accepts apps. Also, have you noticed that Amazon doesn’t sell the iPad (some of their third party vendors do) even though they do sell iPods, and Macs? I’m thinking Kindroid.