Dan Frommer wrote a piece today in which he suggests Amazon should build its own Android tablet. In it he says…
It would be foolish not to include Amazon on the list of potentially huge players in the tablet industry.
While the company is still only selling simple Kindle e-readers, Amazon has quietly built all the tools it needs to compete against Apple and the other tablet makers with its own Android-based tablets.
I vehemently disagree with him on this. Yet I agree with every point he makes. Let me explain…
Amazon, at its heart, is still a retailer. They take products from manufacturers and sell them to customers. That’s what Amazon’s business is based around and they’ve stuck to that in almost every new industry they’ve entered.
In fact, there are only two exceptions I can think of (Amazon Web Services and The Kindle) and in both cases there was a retail oriented reason for straying from the norm.
In the case of Amazon Web Services the reason was excess resources that were sitting around unused. Amazon, like any other store, has busy periods and slow periods. Because of this the company was having to keep a lot of computing power in reserve for those busy times. But that computing power cost money and went unused 99% of the time. Amazon Web Services were a way to generate revenue from that necessary excess.
In the case of the Kindle they had a retail product (e-books) that lacked a quality distribution method. E-Book readers sucked before the Kindle. Most still do. So Amazon realized they’d have to make a decent device since one didn’t exist and that’s exactly what they did. But again the point was to create a distribution mechanism for products they were trying to sell.
Which brings us back to the tablet idea. If Amazon builds their own tablet they risk alienating all the other Android device manufacturers. The only reason for them to take that risk is if there isn’t a quality device for Amazon to distribute their products (as in the case of the Kindle).
But that’s not true. The Android tablets coming out are fairly high quality. In fact the only flaw most reviewers seem to find is in the software (Honeycomb was obviously rushed out the door). So Amazon is much better off playing the benevolent partner to all these manufacturers. Allowing the manufacturers to easily compete with iTunes without building their own music, video and book store. In doing so they can become the defacto media distributor for ALL Android devices rather than limiting themselves to just the one they would build.
Historical Side note: The above scenario is exactly what happened to Pepsico (makers of Pepsi along with other soft drinks) in the 80s. Frustrated by their inability to capture more of the fountain drink market from Coca-Cola they decided to purchase Pizza Hut, KFC and Taco Bell. In doing so they slowly drove all their other customers away. By 2001 they had an even smaller portion of the Fountain market so they spun the three food chains off into their own company.