Google and Amazon about to go to war over Apple iPad’s table scraps; Why Amazon can’t win tablet price war against Google

“When you order something from Amazon, it comes in a box,” Mike Elgan writes for Computerworld. “Boxes are important to Amazon’s business. But they’re not in the box business. They don’t make money on boxes. Amazon is happy to lose a little money on boxes because it enables them to profit from what’s inside the box.”

“To Amazon, a tablet is just another kind of box,” Elgan explains. “Electronic products like music, movies, e-books and digital publications are part of Amazon’s business. An e-book is an item for sale, just like a paperback. And Amazon wants to control the order-fulfillment experience just like it does with cardboard boxes. So it makes tablets.”

“In any standards-based, network-effects-based, application platform-based or aftermarket-based business, the rich tend to get richer. The more customers and partners any company has, the more attractive that company is to additional customers and partners,” Elgan writes. “The tablet market is all four. Apple is by far the richest, and is therefore in the enviable position to keep dominating.”

Elgan writes, “The biggest advantage of all for Apple is less appreciated; and that is that Apple has staked out the high-end “sweet spot” of the market. As a very well-established premium brand, Apple attracts a much higher concentration of deep-pocket big spenders. These are the people who buy Apple’s content and services, as well as apps (of which Apple gets a third of the revenue). In other words, Apple has not only more customers, but better customers. As you can see, Apple not only has a tremendous lead, it has insurmountable advantages going forward.”

“As non-iPad tablet prices go down, more people will buy tablets,” Elgan writes. “As such, over time, Apple will make the most money per tablet, but the majority of tablets will eventually be sold by companies other than Apple.”

MacDailyNews Take: Oh, you mean like iPods? Oh, wait, Apple continues to dominate in not just profit share, but also market share in the portable media player market. Inexplicably, Elgan seems to overlook this fact. As with iPods, there are no third-parties (carriers) inextricably tied to tablets. The carriers are not the primary means for selling tablets as they are for smartphones. Therefore there is no one to foist pretend iPads into the hands of the ignoranti they way carriers currently do with Android phones and soon will do with Windows Phones. The iPad market is just that: The iPad market, not the tablet market. The iPad is much more like the iPod than iPhone.

Elagn continues, “People who won’t buy a tablet until it’s really, really cheap aren’t going to spend freely on Amazon.com. But Amazon still has to lose money on the tablet in order to undercut Google’s dozens or hundreds of tablet-making partners… Amazon can’t win a tablet price war against Google because customers who don’t buy a lot are expensive for Amazon to acquire, but free for Google. Google’s business model scales, but Amazon’s doesn’t.”

Much more in the full article here.

MacDailyNews Take: Take what we said about iPad being more like iPod than iPhone and mix it with the good stuff Elgan writs about Amazon vs. Google and you come to the conclusion that Google will dominate the market for Apple iPad’s table scraps. Unless, of course, patent litigation (Apple, Oracle), royalties (Microsoft), and rampant fragmentation (anathema to developers) drive the Android tablet makers into Microsoft’s arms. If so, simply replace Google Android with Microsoft’s Windows 8. As the legal gears finally grind to a halt and produce outcomes, it may well be that Google can’t win the non-iPad tablet price war against Microsoft.

Related articles:
Legendary Judge Posner upholds largest part of Apple’s touchscreen heuristics (’949) patent in Motorola case – March 31, 2012
Apple’s thermonuclear war on Android – March 29, 2012
Judge Posner praises Apple’s claim constructions as ‘superior,’ calls Motorola proposal ‘ridiculous’ – March 14, 2012
Google ordered by judge to give Apple information on Android development – March 5, 2012
Legendary judge hands Apple key patent interpretation victory against Android – January 30, 2012
Steve Jobs: ‘I’m going to destroy Android, because it’s a stolen product; I’m willing to go thermonuclear war on this’ – October 20, 2011

7 Comments

    1. The main reason to boycott Amazon is that the Kindle reader app for iPad doesn’t support “copy and paste”, so if you want to quote from a Kindle book, you have to completely retype the passage. My reason for checking for titles in iBook first, going forward.

      Amazon is going to rue the day they politiced the agency model pricing into court. Apple can match Amazon’s loss leader e-book pricing without breaking a sweat, since they make an actual profit on the hardware and are not bundling the data pricing with the book, like Amazon does with their Whisper Net.

      Not to mention that JK Rowling is going to show the publishing industry how e-books are done. Talk about wizardry.

      Try to keep up, Amazon. The times, they are a changin’, already.

  1. Windows 8 is going to be a much bigger disaster than anyone seems to think. I feel it in my gut, though I could be wrong. My gut’s been a mess for a while just reading about all this nonsense in the media.

    1. I certainly have picked up from testers as well as from my ‘gut’ that Windows 8 is going to create a lash-back from users, aka victims. This is Microsoft applying a gun to their own head. Metro seriously is THAT BAD. I hear only laughter ringing down the halls of history over this fiasco. And we get to watch! 😆

  2. A big source of laughter for me is the hammering of articles from TechTard journalists INSISTING that Apple give a rat’s about the ~7″ OtherPad market, like there’s any money in it.

    Why I like this particular article by Mike Elgan is that it points out that even Amazon’s great plan of scraping up a profit from sales at their website via the Kindle Fire is likely to be a FAIL, specifically because they are selling a cheap-ass tablet to cheap-ass users.

    By the end of 2012, the Kindle Fire is going to look like one of Amazon’s BIGGEST mistakes ever, in terms of generated profits outside of its only solid functionality, as an eReader.

    Yeah, Apple want that market. 😛
    TechTardiness abounds.

  3. Amazon does seem to be in a precarious position. What if the result of the patent lawsuits is that they have to pay Apple $25 or $50 each for each KF they have sold?

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