High expectations for Amazon’s tablet

If Amazon unveils its tablet computer on Wednesday, as is widely anticipated, consumers, application makers and media companies will be eagerly looking for signs that a true rival to Apple’s iPad has finally arrived.

According to people familiar with the device, the Amazon tablet will be a full-colour touchscreen device powered by a modified version of Google’s Android operating system. It will offer applications through the Amazon Appstore, music through Amazon’s Cloud Player music service, video through Amazon’s Instant Video service, and books and periodicals through its Kindle platform.

With its own curated app store and a suite of media delivery applications, the Amazon tablet will be the first to try to replicate Apple’s ecosystem, in which users can purchase music, video and reading material from one source. Two content owners talking to Amazon about creating native applications for the tablet said they welcomed the company's attempt to create a more orderly version of what they saw as a confusing Android marketplace.

This strategy could position Amazon as a rival to Apple in the business of digital media distribution. Although Amazon is the biggest seller of ebooks, it trails Apple in music sales, and Netflix and others on digital video sales.

Anthony DiClemente, Barclays Capital analyst, said continued Kindle sales and the new tablet were “tailwinds for Amazon’s digital media businesses”, though he noted that other tablets besides the iPad have struggled. Nonetheless, he said: “We believe a tablet will help accelerate Amazon’s shift from physical to digital media sales.”

As it did with the Kindle, which was a loss leader designed to spark ebook sales, Amazon sees the tablet as a low-margin device it hopes will ignite sales of music, video and applications. “While we believe Amazon has the opportunity to take share of the tablet market, we believe the bigger opportunity remains on the content side,” said Mr DiClemente.

Amazon is working to distinguish itself from Apple, which has grated on media companies by demanding 30 per cent of media sales through its iTunes store and been reluctant to share data about consumers. According to people familiar with the deals, Amazon will freely share subscriber data with magazine and newspaper publishers.

In the lead-up to Wednesday’s launch, Amazon has been striking deals with media companies, including arrangements to stream video content from Fox, CBS and NBC. On Tuesday, Amazon and Hearst, the magazine and newspaper publisher, announced deeper co-operation.

“The good news for Amazon is that, unlike everyone else who has tried to compete, they have spent a lot of time building out the services before they launched the device,” said Michael Gartenberg, Gartner analyst.

Amazon’s history in ecommerce will also give it an advantage as it seeks to increase its digital media sales. “They have millions and millions of credit cards,” said Mr Gartenberg. “It becomes really easy to charge for these services. One click and you can rent a movie.”

Of course, many companies have tried to take on the iPad and come up short. Hewlett-Packard discontinued its TouchPad after poor sales. The BlackBerry PlayBook has met with poor sales. Even the Samsung Galaxy, regarded as the best alternative so far to the iPad, has not come close to matching Apple’s sales.

Barclays estimates Amazon will sell 2m units in the fourth quarter and up to 7.9m units in 2012, figures that would easily make it the second-bestselling tablet after the iPad. Apple has sold more than 28m units since the iPad was launched last year.

The Techcrunch blog has reported that the Amazon tablet will cost just $250, undercutting the iPad’s introductory $500 price.

“Few companies are poised to enter the market with the resources they have,” said Mr Gartenberg. “And, of course, it’s going to be prominently placed on the Amazon homepage, which is another homecourt advantage that few other players have.”

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