Here's Why The iPad's Dominance Is About To End
The Digitimes reported that Amazon's much rumored tablet is expected to start shipping in October. The 7-inch tablet, supplied by Quanta Computer, is expected to begin shipping some time in October. The news was reported from sources along Amazon's component suppliers. Additionally, Amazon is also expected to begin shipping a 10.1 inch version of the tablet beginning in 2012. Foxconn Electronics (no stranger to Apple) will handle the orders.
This is nothing new, as it has been reported before that Amazon would begin shipping the tablet to go along with its popular e-reader, the Kindle. What is new is that we are starting to get firm dates on when it will be shipped, as well as sizes, and what it will have in it.
If the tablet is powered on Google's (NASDAQ: GOOG) Android operating system, it could finally be a way for Google to get Android firmly in the tablet market and make it count. The Samsung Galaxy tablet, powered on Android, has seen mixed reviews, and Hewlett-Packard (NYSE: HPQ) recently scrapped its TouchPad. It uses its own WebOS operating system.
NVIDIA Corporation (NASDAQ: NVDA) is also thought to be inside of the Amazon tablet, handling the manufacturing of the processors for the device. No word yet on whether the 10 inch tablet would be more powerful than the 7 inch version, but that makes sense. We have no confirmation yet.
Amazon has long followed the Procter & Gamble (NYSE: PG) model of giving customers the razor head, and charging for the razors. Amazon can afford to give away the Kindle and likely its new tablet at near breakeven prices, or perhaps a slight loss, as long as it sells copious amounts of software. It also wants you to buy products from Amazon on its devices, another plus. That business model has made the Kindle the world's #1 e-reader, and could pose a serious threat to the dominance of the iPad in the tablet space.
Only when HP cut the price of its tablet to $99 did it see significant traction in the market dominated by the iPad. Amazon is likely to take a similar approach to HP, except it won't start the price near the iPad. It could potentially sell the tablet for close to breakeven, perhaps $300 or so, to gain traction.
Benzinga contributor, Robert Irr, discussed the potential for an Amazon tablet back in May and how it would affect the iPad's dominance when it came to price. Irr wrote, "Margins are the name of the game and Amazon has a real opportunity to compress Apple's margins from both a hardware and an app/content perspective. Android tablets are cheaper to manufacture so Amazon could feasibly unveil an Amazon tablet at $399 or even less. Another strategy would be to sell the hardware at a loss and earn margin from the content/app sales. Amazon could sell the tablet at bargain basement prices and generate revenue from these digital purchases. Keep in mind that Amazon has also been very successful with an ad-supported Kindle, so it wouldn't surprise me to see them go back to this well again."
If Amazon continues to follow the Procter & Gamble business model that has worked so well for them, there is no reason to think that Amazon will not be successful with its tablet. Jeff Bezos is the opposite of Steve Jobs, Tim Cook, and the rest of Apple's team, but both arrive at the same conclusion. One gives the hardware away for practically nothing to have you buy its products and consumer its software. The other tries to get the highest margins possible out of everything it sells.
With recent reports suggesting that Apple is going to dramatically boost iPad 2 shipments in the third quarter, it should have a battle on its hands for the first time in the tablet market. With over a 90% market share, Apple is likely going to lose market share in the tablet game. The dominance is likely to end, but consumers will probably continue to keep picking the iPad over other tablets by a wide margin. The Apple halo effect is incredibly strong.
There's a reason why Apple keeps giving you reasons to buy it.
Amazon has now entered that game too.
Traders who believe that Amazon's tablet will prove to be successful might want to consider the following trades:
- This is not an attack on Apple, but rather a reason for the tablet space to finally have a strong competitor. This should boast well for Amazon, and traders may want to add or initiate positions in Amazon.
Traders who believe that Amazon's tablet will be successful may consider alternate positions:
- Steve Jobs once said we are in a "post-PC world." The Amazon tablet is further proof of that. This is bad for Microsoft (NASDAQ: MSFT), as it continues to lag having Microsoft Windows in the tablet space.
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