Quote:
Originally Posted by kennyc
No, because Kindle Fire is not a generic tablet.
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Exactly!
It may look like a generic tablet but it is a harbinger of an entirely different business.
There is a bigger disruption going on here than meets the casual eye.
This isn't just about Amazon dropping prices; it is about shifting where the consumer finds the value and monetizing it.
The problem for Google and (some of) the OEMs is that Amazon is turning tablets into a services play, not a pure hardware play. In hardware-only business, you make'em, ship'em, and contract somebody to service'em if they break. They buy and you're done. And they buy based on the checklist of features.
In a services gadget business, the user expects that at least part of the value of the device comes from the services they can access with the device, not the features of the hardware. (Who care about the inner specs of a TiVo or a Roku? Or a plain old feature phone? As long as they do what they promise, *how* services devices work is largely irrelevant.) This is *dangerous* to the established gadget vendors. Disruptive.
Think of the XBOX (so we don't have to go to Kindle or iPad); it took Sony years and Nintendo a whole console generation to get it through their heads that people really were buying XBOXes to access the LIVE gaming network. That the matchmaking and social-gaming aspects weren't just features but they were the *product*. That back-end services mattered. By then, MS had moved on to add more services and lately a horde of competing/complementary services and we've reached a point you can buy an XBOX and get your money's worth out of it without ever playing a game on it or caring what the specs are.
As long as the hardware is good enough to connect them to the desired services and offer a top-rate experience consumers don't care that the core architecture is 7 years old; the buyers don't care what the CPU and GPU architectures are like. All they care is they can get fast and pristine streaming video from Hulu or Vudu or NBCNEWS or Today. Or clear audio from Last.FM or I (Heart) Radio, or whatever.
Services devices may use computer hardware but they dont sell like computers sell. And applying computer business models may lead to...issues...
Android tablets aren't anywhere close to that, but that is where Bezos sees things going. And with his track record, it is worth considering he may be right. Especially when he is helping te disruption along.
When the value of a gadget lies in the services, the hardware only has to be good enough to get you the services. Having a quadcore laser-blasting slate means nothing if the consumer can't even get to the video streaming store they want. Or if they have to jump through hoops istead of just turning it on and using it.
Look to the Bezos presentation and his obscure comment about not wanting customers on an "upgrade treadmill". It might have been just a hint that the original FIRE will be updated with most of the new software and services. Or it might be a warning to the industry that they intend to standardize on a design and ride it down the price curve for several years the way gaming consoles do, so that the current FireHD9 might be sold not just for a year and replaced by "hotter" hardware but stay around with minor tweaks and updates but at a lower price. Like they did with the original Fire. Imagine that $299 HD9 going for $249 next year. And $199 in 2014. Or the FireHD7 at $159 and the original Fire at $129 next year.
Google's business model is for others to ship the hardware, deal with the upgrade treadmill of having to constantly one-up each other to stay relevant, while *they* get the services revenue through Play and the search ads and what-not. Without *sharing* one red cent with the OEMs.
Amazon playing the tablet game as a rogue android vendor with their own competing services is a "bad example" and a threat to Google because they are shifting the devices' profits from an upfront lump sum to a continuing trickle. (Yes, as in the ereader market.) If the market shifts that way (not a given by any means, not yet) Google would be getting the bulk of the android tablet revenue and the OEMs little or nothing. If it goes that way, how soon before the OEMs start asking for a share of those revenues?
Right now, OEMs bend over to carry Google's PLAY app store because it adds value to the hardware. But what share of those sales do they get? What happens to Google's android business when the major OEMs demand a slice of Play revenues from their devices? Worse, what if the carriers start demanding changes to the licensing terms?
Even worse, what if Amazon shares some of their Appstore revenue with some of the OEMs or gets into the Phone business and offers carriers a sweeter deal? There are actual grumblings that carriers want a bigger share of Apple's monster iPhone profits. And Apple isn't even primarily a services player; they're still primarily a vendor of high-margin hardware. And the carriers want some of that margin because their services revenue trickle isn't trickling enough.
And, of course, even in the staid PC world, the old balance between OEM and tech provider is shifting too. MS is getting into the flagship hardware game *and* beefing up their not-inconsiderable Windows services business. There is disruption to come there, too.
For years we've heard the tech industry talk of moving into services but the meaning of it has always been nebulous. Now that they are actually doing it, though, it is starting to take shape. And the shape it is taking on is a familiar one to the ebook business: it is the long tail of long-term recurring sales. Products that can't survive on short-term upfront revenue can do nicely with a long tail attached, whether they be gadgets or non-Bestseller midlister novels.