Why Amazon’s Tablet Should Have Apple Worried

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Late last week MG Siegler of TechCrunch posted a detailed account of Amazon’s mythical tablet, which many had hoped would finally pose serious competition to Apple and their iPad crown.

Of note is that the tablet appears to be a 7-incher running Android, thus closer to the Nook or even the BlackBerry Playbook than an actual iPad. Cost-wise it’ll run about $250, or half of the basic iPad model’s asking price.

Needless to say: an iPad killer it’s not.

Chunka Mui of Forbes writes:

“Amazon’s tablet, for example, won’t have a camera or 3G wireless networking capability, both of which are standard features on other general purpose tablets.  Its 7-inch screen and memory capacity also pale in comparison to the iPad and other tablets.  None of these features are show-stoppers for Amazon’s core e-reader audience but will limit the Amazon tablet’s wider appeal.”

(MORE: Why Competing with Apple Is So Difficult)

But as Siegler detailed, the new tablet will possess “deep Amazon services integration” supplemented by an ingenious plan to give customers a free subscription to Amazon Prime.

And here’s where Apple should raise an eyebrow: Prime is Amazon’s members-only club that requires an annual fee in exchange for free two-day shipping. I’ve been using it for years. It makes buying things—especially when paired with one-click shopping—dangerously, stupidly easy. Amazon’s WiFi-equipped tablet? It’ll basically be a 7-inch take-anywhere, buy-anything machine.

Amazon’s going to move a lot of units come the holidays if its tablet turns out even halfway decent, funneling users and their hard-earned paychecks back to the Amazon shopping mothership. The tablet itself won’t be in direct competition with the iPad, but it’ll also put Amazon in a unique position to challenge Apple’s most underrated asset, iTunes.

In Alan Deutchman’s Steve Jobs story for Newsweek he writes:

“While the iPod and iPhone reached into the rarefied realm of pure fetish—selling hundreds of millions of units—neither was the truly revolutionary advance that launched Apple on the path to dominance in the Internet era. The greatest breakthrough was really the iTunes store, which went live in April 2003. The debut of iTunes marked the beginning of one of the most incredible winning streaks in the history of modern business…” 

Apple’s Q1 results for 2011 were $1.1 billion in earnings from iTunes alone. It’s not the company’s trendiest revenue stream, but it’s among Apple’s easiest and most enduring. Digital songs, movies and apps have extraordinary long-tail value, requiring little maintenance to turn a profit.

Amazon’s music player or even their App Store for Android—whose naming conventions Apple’s been fighting from the start—pose as spirited a match for Apple’s online business as we’ve yet seen, especially when they’re making it numbingly easy for tablet users to load their machines up (and making things easy is what Amazon’s all about).

Yes, Amazon’s different from Apple in that they maintain a mammoth physical sales inventory, but they’re also racing for the more intangible cloud. It’s a smart move, and one that mimics Apple’s success with the iPhone as a powerful purchasing tool. So no, Amazon’s tablet won’t pose a direct challenge to the iPad, and without a smartphone under their umbrella they can’t even begin to challenge Apple’s iOS.

But a 7-inch money-eater is fresh turf for the taking. Amazon’s online services won’t give iTunes a run for its money, but their tablet will give it a launching point—a backbone, if you will—to be one of Apple’s most well-equipped challengers in the digital goods space yet.

LIST: Tablets: ‘Why Should Somebody Buy This Instead of an iPad?’

Chris Gayomali is a reporter at TIME. Find him on Twitter at @chrigz, on Facebook, or on Google+. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.

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