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Saturday, September 3, 2011

Tablets, Ecosystems and Business Models

Just read about Amazon's awesome plans for its tablet. Its speculative, but if true this new tablet will definitely be a game changer. Consider this: everyone keeps talking about how a tablet needs an ecosystem to survive, and many pundits particularly analyzed tablet strategy after the recent HP debacle. However, Amazon is not just banking on an existing ecosystem, howsoever successful (Android), its creating an all new one!

When you think of it, it appears like such a smart thing to do. Two reasons why:

1) Amazon is massively modifying the OS's visual interface (but not necessarily the nuts and bolts). Now its not just another tablet in the wall, its clearly an Amazon product.

2) More crucially, Amazon is modifying the entire pricing game by making the tablet just a tool for delivering paid content. As per the planned model, Amazon's customers are going to be purchasing tonnes of paid content such as ebooks, music or and movies, thus enabling Amazon to subsidize the price of the device itself. Sales could zoom because the device is priced so low. Seen it before? Of course we have seen it with ebook readers. Lesson is: forget ecosystems, the Amazon guys seem to be masters at creating profitable business models. The difference is: the business model is not just about creating a nice ecosystem for end-consumers, its also about figuring out how best you can monetize your products and services. Now why didn't anyone else think of it before?

You might say companies such as Samsung or HTC don't have Amazon's strength in context to create such a model. But they could have definitely tried! Think about it: did Apple have bulletproof music record licenses in its bag when it thought of a product like the ipod back in 2002? No, but Steve Jobs had the vision to create such a product so he went ahead and negotiated music licenses before launching. Couldn't a Samsung have negotiated with, say, a Netflix and brought movies to its tablets seamlessly? A seamless movie app might or might not have been a killer app (a-la ebooks), but it could have definitely given consumers a compelling reason to choose a Galaxy tab over an ipad (not just Samsung, every single player in the market is currently struggling to come up with a compelling reason). And now Amazon's tablet is going to offer ebooks and movies in addition to plain old web browsing and apps (and probably at a discounted price too). Beat that.

An interesting point it raises is that of Google's Android business model strategy. They were (are) the masters of the PC based internet, but were starting with a blank slate in 2007-08 when it came to the mobile internet. What did they do? They went and ran away with the idea that search and search alone was going to bring them all the revenues they needed from the mobile internet as well. So they created Android and distributed it for free to the entire world of manufacturers. For sure the platform is hugely successful, but don't you think they missed a trick or two when they chose to ignore all the other ways of monetizing mobile devices? In my view these other ways could have been much more renumerative than just search. Even sticking to just software, they could have probably kept a more controlled environment and possibly asked for a cut from all paid apps, like Apple does. Or tied up with content companies such as Netflix like I suggested above. Or heck, why not just move into hardware? Amazon wasn't ever a device manufacturer was it? Still they got their hands dirty with the Kindle so that they could control the ecosystem. I will bet you Amazon is making tonnes and tonnes more money on the Kindle than Google is making through Android / Honeycomb. And the irony is, Google recently got their hands dirty with hardware anyway by acquiring Motorola for...wait for it...defending the Android ecosystem! Something for Larry and Sergey to ponder over!

PS: Turns out I was not the only one taking a hard look at Google's success outside of search. Adam has bad news not just about Android but about all of their non-search businesses.

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