Amazon Services, Not Pricing, Is Why the Kindle Fire Is Disruptive

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I expect the Kindle Fire to do well but I don’t expect it to hurt iPad sales in the slightest. Instead, I do expect it to have a significant impact on the other Android tablets in the market. Other manufacturers of tablets will be forced to drop their prices to compete. The problem is that they are not tied to a robust services ecosystem, therefore the hardware is the only way they make money. Because of that, they will bleed cash and suffer significant losses.

Amazon can hit the lower price points because they didn’t create the most elegant hardware on the market and because they will make revenue up as Kindle Fire consumers consume content sold by Amazon.

Could Amazon License Their Version of Android?

I have been having this debate with myself as to whether or not Amazon actually wants to be in the hardware business. Looking back on the first Kindle, and even the Kindle Fire, Amazon is not making devices that are objects of desire, design-wise. This is important because it again highlights the point that services matter to Amazon more than the design of the device.

There are, however, many other vendors trying to make tablets with a focus on design. One of the things that will be interesting to watch is whether Amazon licenses or gives away their version of Android (which benefits Google in no way) to current Android vendors who are losing money hand over fist making Android tablets.

(MORE: Why Tablets Represent the Future of Computing)

This way, Amazon builds demand for their services and content in a tablet form factor with the Fire, builds momentum, and then lets other people participate in hardware tied to Amazon services.

Amazon could even allow other hardware manufacturers to participate in the upside of services revenue so they can keep costs down as well. Amazon already has a revenue sharing business model in place, so it’s not a huge stretch to imagine such a scenario becoming reality.

Again, this would do further damage to Android tablets and to Google. Amidst all of this, it is important to note that Amazon’s version of Android has stripped all benefit to Google and put all the benefit in Amazon’s corner. If they let other manufacturers in on their services it could be a win-win for all involved, as it could be very disruptive.

I do believe the Kindle Fire is disruptive but, again, not because of the price. It is the Amazon services that separate this product from the pack. I applaud the fresh thinking from Amazon and look forward to more services innovations from them in the future.

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Ben Bajarin is the Director of Consumer Technology Analysis and Research at Creative Strategies, Inc, a technology industry analysis and market intelligence firm located in Silicon Valley.

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