Amazon’s tablet will be Android’s White Knight

A new research report from Forrester predicts that Amazon will be Apple’s chief rival in the tablet market. Although Amazon hasn’t announced a tablet yet, Forrester expects to see the company deliver one this year—and potentially sell millions of units. Forrester’s research mirrors our own take about how Amazon could disrupt the tablet landscape by delivering a low-cost alternative to the iPad.

Forrester analyst Sarah Rotman Epps, the principal author of Forrester’s new report, shares her views below in a speculative guest editorial that paints a compelling picture of how Amazon could raise the bar for Android tablets. Following her editorial, you can read our response, which is based on some questions that Ryan Paul asked Epps in an interview conducted via telephone.

To talk about the “tablet market” today is a polite way of saying the “iPad market.” Apple has sold 28.7 million iPads worldwide to date, while competitors’ tablets are languishing unsold in the channel. (That is, until they cut the price to $99, as HP did recently for the TouchPad.) Today, Apple’s lead in the tablet market looks invincible. But a year from now, this won’t be the case, as the first true iPad competitor, the Amazon tablet, likely enters the market this fall. An Amazon tablet at a sub-$300 price point could sell 3 million to 5 million in Q4 alone if they have enough supply to meet demand—a big “if” for Amazon.

Of course, it’s sensible to ask why Amazon would choose to launch a tablet when Amazon already sells its eBooks and eCommerce goods through Apple’s iPad, iPhone, and other manufacturers’ devices. And as HP’s recent withdrawal from the tablet (and PC) market confirms, it’s difficult and expensive to launch a consumer electronics device, and the risk of failure can be significant. But compared with Apple, and especially compared with other tablet competitors, Amazon will be uniquely able to compete and differentiate, across not just price, but also:

• Brand: Amazon’s Kindle brand gives potential tablet credibility before it even launches. In fact, recent Forrester data shows that more consumers considering buying a tablet would consider buying one from Amazon (24 percent) than from Motorola (18 percent), Acer (13 percent), HTC (9 percent), or Asus (6 percent).

• Content: Amazon sells a variety of digital content by subscription and download, including Android apps, eBooks, music, games, and video. In a move that goes beyond what Apple could offer, Amazon has also invested in acquiring its own custom content through Amazon Studios for film and Amazon’s self-publishing platform for eBooks.

• Cloud: Apple’s iCloud will have more robust features than Amazon’s Cloud Drive when it launches this fall, but Amazon’s B2B cloud offerings and Web Services provides a hefty behind-the-scenes edge. Product strategists at Amazon have a unique opportunity to design a delivery platform for cloud-augmented Android apps that are highly differentiated from their competitors. This infrastructure, if exploited properly, could be a critical weapon in the tablet wars.

• Commerce: Although Amazon doesn’t publish its numbers on stored customer credit cards, it’s likely the only credible competitor to Apple, which reports that iTunes has more than 200 million credit cards stored on file for seamless one-touch purchases of apps and content on the iPad. Already shopping is a popular activity on tablets—47 percent of tablet owners have researched and purchased a product via their tablet, and an additional 13 percent have shopped but not bought. As an eCommerce leader, Amazon could take “t-commerce” to the next level, integrating assets such as one-click purchasing and Amazon Prime subscription service into the tablet experience.

So if Amazon’s tablet comes out of the gate raring to compete, what will it mean for product strategists across the rest of the tablet market? For Apple, it will be time to go on the defensive. Not only does Amazon have the potential to gain share quickly, but its willingness to sell hardware at a loss, as it did with the Kindle, makes Amazon a nasty competitor. Apple can’t underestimate how hard it is to compete with Amazon in the hardware game—this has been made clear in the eReader space as Sony has neither been able to match Amazon on price, nor innovate its product as fast as it needs to in order to compete.

For Android OEMs, Amazon’s tablet will be a “frenemy.” There’s potential for Amazon to not only launch its own hardware, but also to be a platform for other OEMs such as Acer, Lenovo, and Toshiba that don’t yet have vastly differentiated offerings from other Android competitors. While Amazon’s strength may not be hardware sophistication, Amazon-OEM partnerships could yield a variety of hardware choices for consumers, wider reach for Amazon, and a more compelling software and content play for OEMs.

And what about the app world? So far, product strategists across a wide range of industries have invested in iPad apps but have resisted developing Android tablet apps. As of yet, there are fewer than 300 apps for Google’s Honeycomb, while Apple claims 100,000 custom-built iPad apps. But, if Amazon’s Android-based tablet sells in the millions, Android will suddenly appear much more attractive to developers who have taken a wait-and-see approach.

While this all paints a positive outlook for Amazon’s tablet, it’s not going to be a walk in the park. There are weaknesses in Amazon’s product strategy that could cause stumbling blocks. For instance, Apple’s biggest strength, and Amazon’s biggest weakness, is channel. Amazon has no brick-and-mortar stores, compared to Apple’s soon to be 357 stores worldwide. Amazon lacks Apple’s brand strength outside the US. And what about Google? Is this partnership an asset or a challenge? Amazon needs to differentiate its flavor of Android from all the rest, and that may come from emphasizing the Amazon experience over the Google one, as Barnes & Noble has done. But none of these challenges are insurmountable, and we expect that within a year “Amazon” will be synonymous with “Android” in the tablet market.

Sarah Rotman Epps is a Senior Analyst at Forrester Research serving consumer product strategy professionals Follow her on twitter @srepps.

Ars responds (by Ryan Paul)

I discussed Amazon’s tablet prospects with Epps over the phone after I read the draft of her editorial. We talked about how Amazon will differentiate its tablet and what challenges the Internet retail giant will have to overcome in order to make the product successful.

Although an Amazon tablet is hotly anticipated by analysts and the press, it isn’t actually a thing yet. Amazon hasn’t gone on record with any specific tablet plans or a product roadmap. Speculation about the product’s imminent arrival is drawn largely from credible rumors, whispers in the channel, Amazon’s growing investment in Android-related technology, and a strong intuitive sense that a tablet product is the next logical step forward for Amazon’s consumer electronics strategy.

Due to the highly speculative nature of Amazon tablet discussions, we don’t really have a clear picture of what an Android-based Amazon tablet would look like. There are still a lot of open questions about form factor, screen type, software implementation, and other characteristics.

The early rumors suggest that Amazon will aim for a 9-inch screen. In our previous coverage, we suggested that a 7-inch screen might make more sense—it would lower the cost, increase portability, and save Amazon from having to make the tough choice that comes up at larger sizes between a movie-friendly or book-friendly screen ratio.

When I discussed the form factor issues with Epps, she cited a Forrester study which examined consumer screen size preferences. She explained that there is demand for both large and small tablets, but that consumers generally tend to favor the larger size and value additional screen space over additional portability. She pointed out that it’s difficult to draw conclusions from the market today because the iPad is currently the only successful large tablet and the Nook Color is currently the only successful small tablet—meaning that the direction that Amazon goes for the device’s size could end up setting a precedent.

We also talked about what kind of technology Amazon might use for the screen. As I have previously written, I think that Amazon should adopt a dual-mode Pixel Qi screen or something of that nature—it would be a huge win for differentiation and would make a hypothetical Amazon tablet a lot more interesting to consumers and a better fit for the Kindle brand.

A key issue, however, is cost. Considering the cost constraints of the OLPC project for which the Pixel Qi screen was originally developed, I suspect that Amazon could squeeze one into its tablet without having to boost the price, but that’s not really clear yet. Epps says that Amazon can differentiate its product in software and services and that the company’s chief focus for hardware design will be keeping the cost as low as possible. Leaving out the camera, for example, is one decision that Amazon might make in order to hit the target price point.

This line of reasoning leads to an obvious question: if Amazon delivers its tablet at a sub-$300 price, how does that impact its competitive posture versus the iPad? I’ve written in the past that I think it would put the Amazon tablet squarely in a separate market segment—with only a modest impact on iPad sales. Epps agreed, but she doesn’t think that a lower price will allow an Amazon tablet to overtake the iPad in popularity. She imagines Amazon’s offering becoming the dominant Android tablet and following the iPad in position number two for the broader tablet market.

Another issue we talked about is how an Amazon tablet would impact the broader Android ecosystem. She says that Honeycomb, in its current form, is a nonstarter and that Amazon will have to radically improve the user experience offered by the software in order to make a desirable product.

The success of a unique Amazon tablet flavor would marginalize the conventional Android platform on tablets, especially if Amazon starts licensing its custom version of the operating system to other hardware vendors. Despite the challenges posed by such fragmentation, Epps thinks that any effort Amazon makes to popularize Android on tablets would still be beneficial to Google and the broader Android ecosystem due to the network effects.

I think one of the biggest challenges that Amazon will have to overcome in order to make a successful tablet is its frayed relationship with third-party application developers. Although Amazon’s Appstore offers a pretty good end-user experience, developers have been a lot less impressed. Amazon’s poor handling of promotions and inconsistent pricing model have rankled a few prominent developers. Eccentric policies and lengthy application review times also appear to be common complaints. These problems, coupled with the lack of global reach, could make Amazon’s store look unappealing to third-party developers.

When I raised these issues, Epps countered by pointing out that developers have flocked to iOS in order to reach the iPad’s audience despite the modest indignities imposed by Apple’s own convoluted review process.

Forrester’s research has determined that the biggest factor that developers consider when they decide whether to support a platform is whether it has an audience or the potential to attract an audience. On that basis, she thinks it’s likely that Amazon will be able to cultivate developer mindshare if it can first build an audience for the tablet. In the long run, the fact that budget tablet buyers are likely to be less affluent than iPad buyers might prove to be a more relevant deterrent than Amazon’s Appstore policy problems.