And why I think Amazon should go the Facebook way rather than Apple / Samsung way.
THE DISAPPOINTMENT
THAT IS 3D
TABLETS WERE ALWAYS CORE ENABLERS TO AMAZON'S KEY BIZ MODEL. ARE SMARTPHONES IN THE SAME LEAGUE FOR BEZOS & CO.?
NO
SUCCESS SYNERGIES GUARANTEED IN THIS MARKET
iPod Touch, being a low-entry device (when compared to other iDevices) becomes your first affordable Apple purchase and more often than not, sucks you in Apple's content ecosystem (apps, songs, movies, etc.) - try keeping a global perspective here and not necessarily how Apple buying behavior occurs in your country of residence. Guess who are the most avid buyers of the iPod Touch - very young kids (school-going children mostly). As soon as they're ready to get into college and able to afford a cellular plan, more often than not, they tend to go for an iPhone as their first cellular device, since 1) they're already married into the ecosystem 2) Apple's marketing juggernaut will market the crap out of this installed base (i.e. in marketing terms, up-selling). As this segment graduates further, it becomes easier to sell them more expensive Apple h/w - iPad, MacBook, etc...
BOTTOM-FEEDER
The beauty of an ultra-competitive market is that competitive threats are perpetual. Boom - Google Nexus 7 and Apple iPad Mini, Kindle Fire's nemesis.
Refer to the interactive chart above to understand how successive Holiday seasons have seen waning sales for Amazon tablets (feel free to hover over the graphs to understand the numbers better). Y-axis refers to the % of tablet shipments (sourced from IDC) by vendors cutting across the past 8 rolling quarters which are shown on the X-axis.
BUSINESS MODEL MORE AKIN TO FACEBOOK THAN APPLE
If you've observed Facebook evolving over the past 3-4 years, you'll immediately notice how it has stopped trying to be a pure play 'find-a-friend' destination and become more of a 'here are 100 other things to spend your time on Facebook' destination - i.e. news feeds, games, videos, music, maps and most recently, gifts. The more time you spend on Facebook, the more money Zuck and his hoody-cladding team makes by selling targeted ads. Over a period of time, this ecosystem becomes 'the internet' for most users (think: average Joe on the street). The ecosystems pushes relevant and consumable content to it's users, who in turn send valuable data back to the ecosystem servers, enabling them to push more relevant content. It's a vicious circle. In a lot of ways, this is pretty much how Amazon has evolved too - think about it.
Today, above and beyond the best-in-class online shopping portal, they have Prime Instant Video which offers on-demand content from leading content providers such as CBS, FX, Travel Channel, etc. You also have Amazon Studios, Amazon's venture to create original content for movies and series. Think Amazon is ignoring the enterprise market? AWS (their web services division) announced Redshift service which offers full-scale managed warehousing services at highly competitive prices as compared to a traditional data warehouse. It is doing tonnes more - AWS OpsWorks, Amazon Elastic Transcoder, AWS CloudHSM...
And please, no 3D for Chrissakes!!!
Hmm (link)...
surprising.
3D
in smartphones was a potentially-compelling value proposition back in 2010 (as
it was in TVs around that period). The widely-accepted failure of 3D
across electronic appliances so far has taught us an important lesson - there
isn't anything remotely-exciting in 3D apart from the fact that it sounds
'cool'. LG came up with a similar no-glasses-required 3D smartphone last
year (or it could be late 2011, not sure). I happened to check it out at
one of the retail stores - the display was pretty disappointing and there just
wasn't enough justification for the price of a 3D panel. The narrative is
similar in televisions and PCs too. Mind you - this is a personal opinion
- 3D overall has been very disappointing.
Say
what you will, customers don't care about how a new technology works.
What do they care about - does it improve the current UX narrative.
That's all that matters in the end.
TABLETS WERE ALWAYS CORE ENABLERS TO AMAZON'S KEY BIZ MODEL. ARE SMARTPHONES IN THE SAME LEAGUE FOR BEZOS & CO.?
This
isn't the first time Amazon's name has shown up in the smartphone game (back in
2010). Am really surprised Amazon is looking to get into this dog-eat-dog industry. Tablets make sense to
their core business model - make money on services in the long term on cheap
hardware rather than upfront on expensive hardware (the latter is what players
like Samsung, Nokia, RIM, HTC do). Remember Amazon sells its Kindle
products at almost cost and gets recurring lifetime rev$ through their content
ecosystem of books, shopping, music, etc. I articulate here a similar (albeit
opposite) strategic shift which Microsoft tried to employ for its Surface
hardware, but to their chagrin, that doesn't seem to go anywhere. Also,
tablets are much more content-consumption friendly when compared to smartphones
- would you prefer to read a book on a 7-9" display or a cramped
4'4.5" display? Your pick. Additionally, when they launched
their Kindle tablet, we didn't have a podium finish yet - iPads were ruling,
and then Samsung was selling some tablets. Windows 8 wasn't around, and
HP was floundering with its webOS strategy. Relatively easy
pickings in the offing as far as tablets were concerned.
Winning
the smartphone game is an altogether different proposition. The podium is
crowded here - Samsung, Apple, Windows Phone 8 vendors (Nokia mostly) and then
you have Blackberry and HTC biting off the crumbs. Begs the question what
could be Amazon's line of thinking with the smartphone line (if the news is
true). The only analogy which comes to my mind is what Apple did (and
still does very successfully) with its iPod Touch and iPhone / iPad
strategy.
iPod Touch, being a low-entry device (when compared to other iDevices) becomes your first affordable Apple purchase and more often than not, sucks you in Apple's content ecosystem (apps, songs, movies, etc.) - try keeping a global perspective here and not necessarily how Apple buying behavior occurs in your country of residence. Guess who are the most avid buyers of the iPod Touch - very young kids (school-going children mostly). As soon as they're ready to get into college and able to afford a cellular plan, more often than not, they tend to go for an iPhone as their first cellular device, since 1) they're already married into the ecosystem 2) Apple's marketing juggernaut will market the crap out of this installed base (i.e. in marketing terms, up-selling). As this segment graduates further, it becomes easier to sell them more expensive Apple h/w - iPad, MacBook, etc...
iPod
Touch - Apple's best tactical product category till date.
BOTTOM-FEEDER
So
in effect, iPod Touch acts as a 'flanking' entry strategy to Apple's iPhone and
iPad devices. Now carryover the same analogy to Amazon - cheap e-readers,
cheap $200 tablet already exist and have a good installed base. It
becomes relatively easier for them to sell a smartphone with an aggressive data
plan to this audience (i.e. Holiday shoppers mostly). I don't see Amazon
going after the mid-to-high-end smartphone buyers, because Apple and Samsung
are making a killing here. Amazon will find it tough convince Android
smartphone users (assuming it'll be going with Android as the underlying mobile
OS for it's supposed smartphone) that it can offer a differentiated (forget
superior) Android UX. I know people will point out at Amazon's 3.7%
tablet market share per IDC's 1Q'13 tablet market share report. Deeper
number crunching will tell you that most Kindles sold were during the first
year, after which their sales momentum has tapered off.
The beauty of an ultra-competitive market is that competitive threats are perpetual. Boom - Google Nexus 7 and Apple iPad Mini, Kindle Fire's nemesis.
Refer to the interactive chart above to understand how successive Holiday seasons have seen waning sales for Amazon tablets (feel free to hover over the graphs to understand the numbers better). Y-axis refers to the % of tablet shipments (sourced from IDC) by vendors cutting across the past 8 rolling quarters which are shown on the X-axis.
BUSINESS MODEL MORE AKIN TO FACEBOOK THAN APPLE
This is where I find
Amazon's justification a little bit weak in going after the smartphone market,
that too with 3D as a supposed differentiating feature. The 'flank'
leverage which Apple enjoys doesn't necessarily hold for Amazon anymore.
Sure, they have arguably the best content ecosystem in the market right
now - even better than iTunes. Once you start the ecosystem debate, that's
when Amazon starts looking more like Facebook than Apple / Samsung.
Here's how.
If you've observed Facebook evolving over the past 3-4 years, you'll immediately notice how it has stopped trying to be a pure play 'find-a-friend' destination and become more of a 'here are 100 other things to spend your time on Facebook' destination - i.e. news feeds, games, videos, music, maps and most recently, gifts. The more time you spend on Facebook, the more money Zuck and his hoody-cladding team makes by selling targeted ads. Over a period of time, this ecosystem becomes 'the internet' for most users (think: average Joe on the street). The ecosystems pushes relevant and consumable content to it's users, who in turn send valuable data back to the ecosystem servers, enabling them to push more relevant content. It's a vicious circle. In a lot of ways, this is pretty much how Amazon has evolved too - think about it.
Today, above and beyond the best-in-class online shopping portal, they have Prime Instant Video which offers on-demand content from leading content providers such as CBS, FX, Travel Channel, etc. You also have Amazon Studios, Amazon's venture to create original content for movies and series. Think Amazon is ignoring the enterprise market? AWS (their web services division) announced Redshift service which offers full-scale managed warehousing services at highly competitive prices as compared to a traditional data warehouse. It is doing tonnes more - AWS OpsWorks, Amazon Elastic Transcoder, AWS CloudHSM...
Amazon tends to 'behave'
more like Facebook. Facebook wanted to be on all phones, and they are -
sans the h/w pressure. I think THAT's a good biz model for Amazon to
follow.
Right then, where do we go
from here? All we know about Amazon's grand plan is just a rumor, which
may stay likewise. It's during these times that one tends to look at the
management conviction in a particular strategy. Bezos is a tech-maverick
and isn't afraid to take risks - he manages quite a few big ventures outside
the industry too. Neither is he afraid of taking on giants - remember the
Kindle Fire launch event? It'll be interesting to know what he's thinking
with this one though.
And please, no 3D for Chrissakes!!!
Image credit 2: http://allthingsd.com/20111117/amazon-kindlephone-for-2012/
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