Jeff Bezos: The battle of the tablets
Amazon and Google versus Apple is a clash of the titans as Jeff Bezos sends the Kindle Fire into dominant iPad territory
Amazon's launch of a souped-up version of its Kindle reader has turned up the heat in the tablet wars. Will Amazon founder and chief executive Jeff Bezos be the one who ousts Apple from its dominance of this lucrative market?
Since Apple launched its iPad tablet in April 2010, the portable computing market has been turned on its head. Previous staples such as laptops and netbooks have been marginalised, with people determined to possess Apple's latest 'must-have' product.
As sales of the iPad soared -- with 25 million having been shifted by mid-year and a further 15 million expected to be sold in the second half of 2011 -- other manufacturers scrambled to produce their own me-too versions.
With, it must be said, varying degrees of success.
Not alone has Apple fiercely defended the iPad against alleged patent infringements by rival tablets, none of the other manufacturers has come even close to matching the iPad's desirability among consumers. With its cachet among consumers, the iPad is as much a fashion accessory as a piece of electronic kit.
Samsung, Sony, BlackBerry and several other manufacturers have tried, so far unsuccessfully, to replicate the iPad's appeal. The iPad had an estimated 68pc share of the global tablet market in the second quarter, up from 65pc in the previous quarter. The iPad also accounts for virtually all of the profits being made in the tablet market.
Which is where Amazon's Kindle Fire, which was launched this week, comes in. Founded in 1994 by Jeff Bezos, Amazon is not a hardware manufacturer but an online retailer. And not just any old online retailer but by far the world's largest, with 2011 sales forecast to hit $64bn (€47.7bn).
Over the following 17 years Amazon, which began life as an online book retailer, has expanded into other markets, including CDs, DVDs, clothing, footwear, consumer electronics, health & beauty and groceries.
The company's shares were first floated on the Nasdaq market in 1997 but it took until the final quarter of 2001 before it turned its first profit -- $5m on sales of more than $1bn.
At that time, in the immediate aftermath of the bursting of the dotcom bubble, the Amazon profit, no matter how modest, demonstrated to investors that, unlike many of the other companies that rode the internet mania, Amazon had a sustainable business model.
Despite its success in under-cutting traditional retailers of everything from books to toothbrushes, there was a potential flaw lurking at the heart of the Amazon business model: starting with the launch of Apple's iPod in 2001, one consumer category after another has moved from physical to electronic delivery.
It began with CDs. Who needed those expensive, fiddly bits of plastic when you could simply download the music from the internet? The same applied to DVDs and, most relevantly in Amazon's case, to books. Suddenly, instead of placing your order and waiting several days for the postman to deliver it, you could download your music, films or books instantly.
Bezos was one of those who identified the trend to electronic delivery at an early stage. Amazon started developing an electronic reader in 2004 and three years later launched the Kindle. The Kindle allows readers to download their books in electronic form without the inconvenience or expense of having to take physical delivery of them.
It was an immediate hit. Amazon now ships over six million units a year and the Kindle is rapidly displacing paper books. Amazon revealed that it had sold more e-books than paperbacks for the first time in the United States during the final quarter of 2010.
However, despite the success of the Kindle, it and other similar gadgets, such as netbooks, were very much niche products. The arrival of the iPad in early 2010 completely transformed the nature of the market. With Apple's formidable design capacity and marketing machine behind it, the iPad turned what had been a specialist backwater into the hottest segment in consumer electronics.
The iPad represented both a threat and an opportunity for Amazon. If Amazon sat back and did nothing, it ran the risk of seeing a large chunk of its business migrate to the iPad and Apple's in-house iTunes internet retailer. On the other hand, by greatly expanding the tablet market, it also gave Amazon the opportunity of putting Kindles into the hands of far more customers.
Amazon enjoys one huge advantage over Apple and the other hardware manufacturers in the tablet market. As an on-line retailer, it seeks to make most of its profits from selling books, music, films and other products to its customers. So long as Kindle users use the device to buy plenty of e-books, it doesn't need to make money from the sale of the device. In fact, at the US price of $199, just a third of the $599 price of Apple's iPad, Amazon is reputedly losing $50 on every Kindle Fire unit it sells.
The challenge facing Amazon was to move the Kindle from being merely a specialist e-reader into the mainstream. The Kindle Fire seeks to do this. As well as e-books, the Kindle Fire also allows users to download music, film, TV shows, newspapers and magazines.
So far, so uncontroversial. However, the Kindle also comes with its own web browser, Amazon Silk. According to Amazon, this allows Kindle Fire users to surf the net up to 20 times faster than users of other browsers. It also allows Amazon to monitor the web-browsing of Kindle Fire users, something which already has privacy advocates up in arms.
Such controversy is unwelcome for Amazon. Bezos needs the Kindle Fire to be a big success in the new era where internet retailers increasingly deliver product in electronic rather than physical form. With Apple's iTunes charging suppliers a margin of up to 30pc to stock their products, the potential gains are enormous.
So can Bezos succeed where the other iPad me-toos have so far failed? The early omens are certainly good, with 95,000 customers ordering the device on the day it was announced.
It certainly does no harm that the Kindle already has a large body of loyal users, many of whom can be expected to upgrade to the Kindle Fire. The pricing also helps. While there are many Appleistas for whom only the iPad will do, there is almost certainly a large untapped market for a low-cost tablet delivering media and entertainment at reasonable cost to its users.
With its existing retail business, and its success with previous Kindle models, Amazon is much better-placed to succeed with a rival tablet than most of the hardware manufacturers.
Bezos has one other advantage. While Amazon, in which he retains a 20pc stake worth almost $18bn, is his principal source of wealth, he was also one of the early investors in Google with shares now worth as much as €1.5bn. While Amazon and Google have since squabbled, Kindle Fire, no doubt applying the principle that my enemy's enemy is my friend, uses Google's Android operating system.
With most of the other tablet providers finding it extremely hard to compete with Apple, Kindle Fire almost certainly represents Google's last, best hope of Android cracking the tablet market. Amazon and Google versus Apple is the technological equivalent of the clash of the titans. What a mouth-watering prospect. Let battle commence!