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Monday, September 26, 2011

Amazon Has High Hopes for Its iPad Competitor


One after another, like moths to a flame, technology companies have been seduced into entering the market for tablets. Apple made it look so irresistible, with 29 million eager and sometimes fanatical consumers snapping up an iPad in the device’s first 15 months.




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Brian Snyder/Reuters

A Kindle user in Cambridge, Mass. Amazon has been willing to sell its e-reader at a loss.



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Tony Avelar/Bloomberg News

Shoppers test out iPads at an Apple store in San Francisco.


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But neither Samsung nor Motorola nor Acer could beg or borrow any of Apple’s magic. Research in Motion, the maker of the BlackBerry, said it shipped only 200,000 of its PlayBooks in three months — about what Apple sells in three days. Hewlett-Packard, which flopped this summer with the TouchPad, was the latest to get burned.

Now comes a final competitor, the best-placed challenger of all: Amazon.com. The retailer is on the verge of introducing its own tablet, analysts predict, a souped-up color version of its Kindle e-reader that will undercut the iPad in price and aim to steal away a couple of million in unit sales by Christmas.

A competition between Amazon and Apple tablets will be a battle that pits the company that created the first popular e-reader (and set off a still-unfolding revolution in how books are consumed) against the company that created the first popular tablet (and set off a revolution in progress about how entertainment and other media are consumed).

Both companies are riding high, racking up record revenues and seeing their stock market valuations cruise to new peaks. Each has ample resources to enjoy a pitched struggle for people’s attention and their wallets.

Whichever company triumphs, said the Barclays analyst Anthony DiClemente, “the consumer is going to be the winner.”

“The fact that Amazon is making such a huge investment might make Apple come back into the market at a lower price point,” he suggested. “What’s to prevent them from slimming down the iPad?”

Most tech companies like to keep their cards close to their vests, but Amazon, like Apple, strives to render the whole deck invisible. It has, though, scheduled a news conference in Manhattan on Wednesday, and the speculation on technology blogs and among analysts is that the tablet will be unveiled.

The original Kindle was not introduced until Nov. 19, 2007, which was rather late in the holiday season. It immediately went out of stock for five months. Amazon perhaps is learning from its mistakes.

The Amazon tablet, analysts believe, will most likely sell for about $250, half the price of the basic iPad. Its screen will be seven inches as opposed to the iPad’s 10 inches. Unlike the current Kindle but like the iPad and iPhone, it will operate by touch. A second tablet, with a bigger screen, is expected next year.

The competition will be asymmetrical. Apple sells movies, music and books in order to sell devices. Amazon sells devices in order to sell books, movies and music. Apple has never faced an opponent with such a vastly different strategy. Apple declined to comment on its strategy against Amazon.

Few if any analysts expect Apple to seriously stumble, but that is not to say it will emerge unscathed. The Amazon tablet might be underpowered when set against the iPad, a Corolla to Apple’s Lexus, but that might not matter.

“The No. 1 thing consumers do on tablets is e-mail,” said Sarah Rotman Epps, a Forrester analyst. “The No. 2 thing is look up stuff on the Web. Then playing games and watching video. Amazon will offer all the tablet that many consumers need.” She estimated initial sales of as many as five million devices.

Amazon’s willingness to sell the Kindle e-reader at a loss — it dropped to $114 from $399 in less than four years — will doubtless be duplicated with its tablets. By concentrating on direct sales from its own Web site, Amazon does not have to share margins with another store.

All that makes Amazon “a nasty competitor,” Ms. Epps wrote in a recent report, and leaves Apple vulnerable among those who want a tablet solely for entertainment and not for professional uses. Since that is about two-thirds of tablet users, Apple’s product strategists will finally have to take a competitor seriously, she concluded.

Apple is not the only vulnerable one. The Amazon tablet will sell for the same price and offer many of the same things as Barnes & Noble’s successful color Nook e-reader. The once-mighty book retailer is staking its future on making the transformation to digital; otherwise it will end up like its one-time competitor Borders, now vanquished.

Amazon has 52 percent of the e-reader market against 21 percent for Barnes & Noble, according to the data firm IDC. A small harbinger of the cutthroat struggle between the two booksellers came this summer in the unlikely form of a best-selling German historical novel, “The Hangman’s Daughter” by Oliver Potzsch.

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