As I see it, Amazon's biggest goal in selling a tablet is to create a platform through which they can sell their digital video products. Amazon seems to have focused quite a bit recently on its VOD services, and yet they can't be viewed on the iPad, which is pretty much completely dominating the consumer tablet space. This puts Amazon into a similar position to the one it occupied before the Kindle came out - it needed a product on which it could sell its books, and the only way to achieve this was to make its own tablet.
Of course Amazon would also like to sell books through its tablet, and apps, and it would like to make some money on the tablet itself. But I think the primary reason for having a tablet is to support Amazon's video services.
If my theory about video being the motive for the tablet, it tells us a few things about the tablet's likely design - it will have a good quality screen and decent graphics capability, for example. And it may have stereo speakers. It may also have a 10" screen, since larger is generally better for video.
But I have an additional theory - I think that the Amazon tablet will work something like a Roku...or Apple TV, even...to allow streaming directly to your television set. In other words, you will be able to stream movies to your device, directly, and you will be able to attach the AmTab to your TV and watch streaming content there, in 1080p. (You will probably also be able to download a movie directly to the tablet and watch that on your TV as well...although this advantage would really only come into its own if the tablet also had expandable media).
A roku itself is not very expensive, and streaming functionality comes built into a lot of other devices by default (TVs, BR players, etc.), so adding this functionality to a tablet would not add much additional expense. It would also give the tablet a functionality that the iPad does not have (with the appropriate adapter, the iPad can play a movie stored on the iPad itself, but it can't stream). The other thing I like about this functionality is that it supports Amazon's video goal 100%.
While I do think that the best size for a tablet with video functionality is 10", if Amazon's tablet will allow movies to be played on regular TVs, Amazon may decide that a smaller tablet is appropriate. A smaller tablet does have other advantages - it's cheaper, it's better as an e-reader, it's more portable,...and it doesn't compete as directly with the iPad.
In any event, that's my Amazon tablet theory.
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