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The Kindle changed the way many of us purchased and read books. Amazon may have seen the way iTunes and iPods changed the way consumers purchased their music. Consumers were moving away from physical CDs and towards digital media that could be delivered electronically without the trip to the store or even the trip to Amazon.com to have the CD shipped to their house.
Amazon created an ecosystem, complete with free 3G on certain models to access their purchased books in “the cloud” at any time. Now the Kindle Fire has thundered in and added music and video to its arsenal. Amazon has carefully built an app store, mp3 store and instant video streaming to add to its digital bookstore. Amazon also modified the open sourced Android platform to give consumers a user friendly interface that brings their digital content delivery to the front line. Then Amazon changed the way electronics were sold by selling their Kindle’s and Kindle Fire’s at or around cost.
The result of their work was a tablet that some analysts estimate sold 5-6 million units in Q4 2011. Analysts also estimate that Amazon generates $136 in revenue from their app, music, video and book stores per Kindle Fire. Furthermore, possibly due to the simplicity and ease of use, Fire users purchase over two and a half times the apps than other Android tablet users.
Developers are loving the Fire, the current fastest growing platforms for developers is the Kindle Fire and Windows Phone platforms. Amazon has done what the wireless carriers, and Google to a certain point, have struggled mightily to do with their digital marketplace. They have even introduced Amazon Prime, which gives subscribers access to a Netflix-like video streaming service, a Kindle book lending library, and free two day shipping on all their Amazon.com orders. All of this makes the wireless carriers attempts to generate revenue from their digital media marketplaces look like a failure.
What's next for the Popular Kindle Fire Series?
Amazon is rumored to be placing orders with Foxconn for a 10 inch Fire. Could this be a sign of things to come? Citigroup’s Taipei-based hardware research analyst Kevin Chang believes “an Amazon Smartphone will be launched in 4Q12.” With their ability to sell units at a low profit margin or even a loss and make money on content delivery, they could be a major player in the low end smartphone market.
On the major carriers, the subsidy could easily bring an Amazon Fire Phone to free on contract. The prepaid world would be another market that Amazon could exploit. Prepaid carriers thrive on the low end and low cost smartphones. The app store would likely still see plenty of use, but with a smaller screen, the amount of books and video purchases could tail off.
There is no question that Amazon has built their platform into a success. They have designed a marketplace that is easy to use, motivates users to buy additional content and wraps nicely into their existing business promoting users to buy household goods from their online marketplace. While Amazon has a Kindle app, music app, app store etc., they don’t work nearly as well as standalone apps as they do when they are all wrapped into one user friendly package. Amazon could remove itself from the device building industry and license the “Fire” platform to device companies like HTC or LG to build devices while still retaining the content delivery profits. They would most likely need to remove the traces of Android from their new operating system, or work out a patent licensing deal with Google for use of their version of Android.
Could Amazon boldly become a Quasi-Wireless Carrier?
Still another option for the retail giant would be to purchase large amounts of mobile data from wireless providers or wholesalers and bundle it with the digital delivery to provide “free” downloads of music or video. There is already a cost difference between SD and HD digital video; the additional bandwidth cost could be built right into the price of the video. It wouldn’t be the first time that they provided free data for downloading purchased content.
Several models of Kindle have included a 3G radio for downloading books onto the device (but any other data usage was limited to WiFi only.) They could even start a MVNO with their device lineup. Customers of Amazon are normally looking for a bargain from a reputable name; just the Amazon name behind a prepaid or postpaid MVNO would sell plans thanks to their clout in the marketplace.
Whatever direction Amazon decides to travel, they have struck success with a first generation device. This is a very difficult thing to do with the competition level as fierce as it is today. Apple owns the tablet market currently, but Amazon has certainly inserted itself near the top of the Android platform and has shown that their Fire platform is a major player in the tablet market.
Photos courtesy of CBS interactive and PC World.