Why Amazon Shouldn’t Be in the Hardware Business

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Photo-Illustration by Alexander Ho for TIME; Photo: Amazon / AP

Hopefully today’s column will spur some healthy debate.

I personally would love to know why Amazon should be in the hardware business. Initially I thought the idea made a lot of sense. What I expected with the Kindle Fire tablet was that it would be the best possible implementation of software, hardware and Amazon’s retail services — both physical-retail and digital-media sales. However, the Kindle Fire was not a better tablet for doing any of those things. In fact in many cases, there are better devices than the Fire for consuming many of Amazon’s services.

(MORE: Margins and More: Who Can Actually Make Money from 7-In. Tablets?)

So if Amazon is not creating the best device for accessing and consuming its services, then why is Amazon in the hardware business? That is the question. Until Amazon shows me that it can make a piece of hardware that’s far and away the best device to consume its services on, I’ll keep asking this question.

For the record, I believe that consumer hardware is a short-term value proposition. As we get closer and closer to fully featured cloud- and browser-based computing, hardware simply acts as the physical gateway to the cloud services we use. I have said this many times, but I believe the Internet is the platform of the future.

Hardware will still be important, of course, and a few players may make decent margins on hardware, but they will be in the minority, not the majority. Hardware-only businesses have a very tough road ahead of them.

Initially for Amazon, an exclusive piece of hardware made sense as a gateway to the company’s cloud services. But the more I use non–Kindle Fire devices to consume Amazon’s services, the more convinced I am that Amazon shouldn’t be in the hardware business. I use many different devices and software platforms in my day-to-day life because I test so many different products and technologies. I know I am unique in this manner, but the point remains that I find significant value in the Amazon apps and Kindle apps that let me consume Amazon’s services on whatever device I choose.

This, of course, is what Amazon wants. It’s unlikely that Amazon wants me to have to buy its hardware to consume its services. It just wants me to consume its services. Yet this strategy needs to be extended to more of Amazon’s services. Take Amazon Prime for example, which offers streaming movies and TV shows similar to Netflix. Why is Amazon not integrating Prime into its applications more? What about other types of media that Amazon sells? Why is Amazon not creating apps that would extend its media services to as many hardware devices as possible?

In my opinion, the smartest thing Amazon can do is focus on being hardware agnostic and develop a full walled-garden app that encompasses all of Amazon’s services in one place. Not only would this save the company from spending large amounts of money on hardware research and development, it would also allow Amazon to focus on being a better service provider, which is exactly the business it’s in.

In fact, I see no difference between Amazon making an extremely great application and Amazon making a slab of hardware with its services integrated. I used my Kindle Fire for one day, then never again, yet I have consumed Amazon’s services heavily on my iPad and the Nexus 7. I am an Amazon power customer, one who probably spends in the top tier and is embedded in the company’s ecosystem. Yet Amazon’s own hardware failed me while others did the job.

I’ll end with this: fundamentally for Amazon, it all comes down to the jobs-to-be-done philosophy. What job would a consumer hire a proprietary piece of hardware from Amazon to do that couldn’t be done by another company’s hardware? If Amazon can’t sufficiently answer this question and truly deliver a compelling value proposition (beyond cheap, since it’s my conviction that growing numbers of consumers in mature markets aren’t interested in cheap), then the company shouldn’t be in the hardware business. And from what I can tell, observing this industry from a big-picture standpoint, the answer to the question I just posed is nothing.

MORE: Are Notebooks Becoming Relics?

Bajarin is a principal at Creative Strategies Inc., a technology-industry-analysis and market-intelligence firm in Silicon Valley. He contributes to the “Big Picture” opinion column that appears every Monday on Techland.

36 comments
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1Plaza
1Plaza

 I appreciate Mr. Barajin providing his perspective on the Kindle Fire. Sometimes listening to views from others give more insight into the subject at hand. As a user of the Kindle Fire, I have found it to be very suitable for my needs from a tablet and have been pleased. My question to Mr. Barajin is what are the specifics of why the Kindle Fire is not adequate for his expectations from a tablet. Not expecting a reply based upon the  number of comments and questions posed to journalists in today's world, but if anyone knows what the issues are, please comment. Thanks.

JamesAmazon
JamesAmazon

If they should be in it or not is a good question but one thing it does give them is ability to control prices, if you look history of Amazon prices using  www.huge-river.com you will be amazed how much they change, however something like the kindle is very constant as Amazon controls all of the supply change which makes profits and planning much easier!

Stuart Miller
Stuart Miller

"I used my Kindle Fire for one day, then never again," 

I guess this explains some of the wrong reasoning of the article. If you had used it for more than a day, you might have realized how tightly integrated the content buying experience really is on the Fire. You get little to none of that on the Android or iOS apps. 

If you want to be in the content game and don't make the hardware...you are going to be at the mercy of your competitors who sell content and hardware (Apple and Google). And you will end up paying them to sell your content on their hardware.

Google obviously would like Amazon to not be in the hardware business. Jelly Bean is an obvious attempt to try for a Fire Like interface to buy Play content.

geek
geek

It was Amazon that innovated the e-reader business with its hardware + Eco System.  The thought that Amazon is on the wrong path is total nonsense.  Oh by the way, look at the move Microsoft just made and the approach apple has taken.  Bad analysis for the Time who is now printing and distributing how many mag's?

zzz05
zzz05

You're really tempting fate when you name your device "Kindle Fire".

Ian Anthony
Ian Anthony

I've tried numerous Ebook readers and the Kindle Touch is by FAR the best. A feature not even found on others is the Text-to-speech, and I use it for 6 hours most weekdays (my job lets me listen to audio, but not read). 

You need to limit the scope of your article to "Why Amazon shouldn't have made the Kindle Fire." I might even get behind that statement. As far as I can tell you don't even touch on Amazon's Ereaders, which is a HUGE portion of their 'hardware.'

Luke Bonner
Luke Bonner

Regardless of what you _can_ do with amazon's offerings with the nexus 7, the fire still felt more integrated with the amazon marketplace. for example, many amazon customers opt for prime for 2 day shipping, which additionally gives you access to amazon's tv shows. As soon as I registered, all my books from my kindle showed up, covers and all, in the book section. amazon also has a free app of the day, which I like. My cloud drive is integrated with my amazon shopping account, which is convenient as well. (I don't know if google does? I wouldn't be surprised if they do) Frankly I couldn't care less about a forward facing camera, I wish you could customize these tablets more for different price points... 

I'm actually surprised at all the nexus 7 hooplah (I know it's good) and all the doomsday talk for the fire....it sounds like the second generation is right around the corner, why not wait for that before declaring that google is the ultimate winner in the 7" tablet category and amazon has no place in the tablet market? 

I will say the touch screen on my fire, and the crappy web browser are both major factors on which tablet I pick up next. If amazons kf2 steps up and is close to the nexus 7 in specs/performance, I see no reason why I'd go with the nexus over it, I could always root the fire.

nerdpocalypse
nerdpocalypse

it's a LOT more complicated.

There's keeping the distribution channels open (as commenters know way better than me). And there's also keeping production channels open (self-publishing of books and apps). Apple opened the floodgates on apps by making a user easy app language freely available with python. Amazon has self-publishing of books easily available.  Both are going to have angry birds, web porn, video-skype.

Amazon is going to be first with media production, but Apply can enter it whenever they want. In 1-5 years it won't be ABC/NBC/CBS it will be Amazon/Apple/Google....

Samir Shah
Samir Shah

Instead of developing their own hardware Facebook collaborated with Apple. Instead of developing their own hardware Amazon can collaborate with Samsung. THEY BOTH NEED EACH OTHER IN MANY WAYS.

Ken Berger
Ken Berger

Amazon is in the same business at Wallmart - the distribution business.  They are a low cost provider of distribution and fulfillment services.  The fire is not different from any other box Amazon sells. 

Stynkfysh
Stynkfysh

Seriously?  This author fails to recognize that Apple was poised to corner the market for eBooks on tablets as there had been no meaningful inroads of tablets on the Android platform and Apple, allegedly, was in collusion with ebook publishers who were killing off Amazon's low pricing capability while simultaneously promoting iBooks and a 30% fee on electronic good purchased on iOS devices.  Amazon was effectively unable to sell eBooks on iOS, the only real tablet computer, at all.  Android tablets were unpopular (relatively speaking vs. iPad) and no one was going to buy a $500 Amazon-Android tablet in meaningful numbers, regardless of quality.  So Amazon did what they do best, they introduced the first ever super-low cost yet decent quality Android tablet that gave unfettered access to their goods and services.  This price point was something Android needed to do from the beginning in the tablet space to gain market share but failed at (Nexus 7 is doing it now).  Android rapidly gained market share in the phone space because Apple maintained exclusivity at wireless carriers which gave Android a springboard to success on the carriers that didn't have the iPhone.  No such thing existed for Android tablets.  Amazon was also at the whim of iOS for tangible goods and Google has gone full board with its Play Store and is commercializing its Shopping space.  Without its own mobiule computing platform, Amazon runs the risk of being elbowed out of the mobile technology space.

Top Scientist
Top Scientist

"Amazon was effectively unable to sell eBooks on iOS, the only real tablet computer, at all."

What a bizarre comment. I've been an iPad owner since day 1, and have purchased Kindle books on it from day 1. Yes, you have to do it from outside the Amazon app, but it's hardly an inconvenience.

Stynkfysh
Stynkfysh

Amazon does not sell Kindle books on iOS.  You have to go to Amazon's Kindle for iOS website to buy books which are then pushed to your Kindle app on iOS.  I have been an iPad own since Day 30 and have bought and read Kindle books on iOS as well.  Here are the instructions per  Amazon's website:  

How do I buy books on Kindle for iPad or Kindle for iPhone?

For iPad: On your iPad, open Safari and go to www.amazon.com/ipadkindlestore. When you find a title and tap "Buy", choose "Read in app" to read the book in your iPad reading app, or choose "Read in browser" to read in Kindle Cloud Reader.

For iPhone or iPod touch: On your iPhone or iPod touch, open Safari and go to www.amazon.com/kindlemobilesto.... When you find a title and tap "Buy," choose your Kindle reading app from the drop-down list, and then choose "Go to Kindle for iPhone."

Stynkfysh
Stynkfysh

Amazon does not sell Kindle books on iOS. You have to go to Amazon's Kindle for iOS website to buy books which are then pushed to your Kindle app on iOS. I have been an iPad own since Day 30 and have bought and read Kindle books on iOS as well. Here are the instructions per Amazon's website:

How do I buy books on Kindle for iPad or Kindle for iPhone?

*For iPad:* On your iPad, open *Safari* and go to www.amazon.com/ipadkindlestore <http: amazon.com="" ipadkindlestore="">. When you find a title and tap "Buy", choose "Read in app" to read the book in your iPad reading app, or choose "Read in browser" to read in Kindle Cloud Reader.

*For iPhone or iPod touch*: On your iPhone or iPod touch, open *Safari* and go to www.amazon.com/kindlemobilesto.... When you find a title and tap "Buy," choose your Kindle reading app from the drop-down list, and then choose "Go to Kindle for iPhone."</http:>

smjhunt
smjhunt

It's actually pretty obvious why Amazon has been getting into the hardware business.  Apple has been trying try to steer any purchases on an iphone/ipad to its store and collecting a significant chunk of money from the vendors for everything they sell.  For a low margin business like amazon, this is a significant hindrance to their growth. Apple has laid down the strategy of the future, creating walled gardens so that inside the garden anything the consumer buys must go through them.  Google is having the same problem with Facebook and Apple as well.  I also think this person's conclusions are premature.  After all, the fire was really their first try at hardware and for a first try not bad at all, especially for the price.  Companies like Google,Amazon and Microsoft as well as Amazon are now forced to try the walled garden approach and this requires having a hardware platform they control.  Not just to funnel consumer's purchases but also to provide the user experience you get from apple with its tight hardware/software integration. I would agree however that not all of them are going to succeed but really, we need only one to succeed in competing with apple to counter the walled garden strategy. 

PeggySan
PeggySan

Wow, I wasn't a paragraph into this article when the phrase "there is no reason for any individual to have a computer in his home" - circa 1977 - popped into my head.   Mr. Bajarin, who is completely adorable in his naivete, is destined to go down in history for this less than brilliant pronouncement.   

The most depressing part about this article is the fact that the author, who is in his early 30's, is already to old to accurately read tech trends.....guess it's off to the middle school for tech advice going forward.

flux8
flux8

As others have said, it's more likely Amazon is in the hardware business out of necessity than because they think they can do hardware better than everyone else.  I'm sure they're looking down the road at what Apple and others like Sony and/or Samsung are going to do.  Especially Apple.  Amazon is vulnerable because Apple can make more content available and more convenient to get than it would be through Amazon. They already have the hardware leverage. It's still likely to be a losing game for Amazon. But if they don't at least give their best effort in hardware, they'll definitely be at Apple's mercy.

Robert Nelson
Robert Nelson

There are so many things wrong with this analysis I find it hard to begin. But, I guess, I'll proceed chronologically. First off: "the Kindle Fire was not a better tablet for doing any of those things. In fact in many cases, there are better devices than the Fire for consuming many of Amazon’s services." This is clearly a matter of opinion, especially considering the Kindle Fire costs half or less the price of many of these other devices - like the IPad, for example. Second: "why is Amazon in the hardware business? That is the question. Until Amazon shows me that it can make a piece of hardware that’s far and away the best device to consume its services on, I’ll keep asking this question." Amazon sells products, that is why it's in the hardware business. It's primary focus has always been on products, not  services. By definition, its device is going to be among the best - if not the best - to consume its products. It would be stupid of Amazon to produce anything less. And, for the sake of the argument, let's not assume that Amazon is stupid. Third: "It’s unlikely that Amazon wants me to have to buy its hardware to consume its services. It just wants me to consume its services. Yet this strategy needs to be extended to more of Amazon’s services." This argument ignores what I've just said. Amazon is not and has never been primarily a services outfit. It is a retailer, dude!!! As such, it's primary business is to sell things, not services!!! Fourth: "Take Amazon Prime for example, which offers streaming movies and TV shows similar to Netflix. Why is Amazon not integrating Prime into its applications more? What about other types of media that Amazon sells? Why is Amazon not creating apps that would extend its media services to as many hardware devices as possible?" Maybe because it wants you to buy and use its Kindle hardware. Did you ever consider that? On Kindle all of these "services" are completely integrated, so downloading and streaming movies vis Prime, for example, is a breeze. Fifth: "I used my Kindle Fire for one day, then never again." And, it shows too, dude. Anything the IPad or any other device the Kindle can do - and, this is the whole point - for a whole lot less. I don't know about you, but us "ordinary" people who don't report on tech for a living don't have unlimited budgets on which to spend and play around with electronic gadgets and toys. Maybe if you actually used your Kindle Fire a lot more, you would have seen that a lot of the same functionality on much more expensive devices is incorporated into it. Why spend more than you have to, unless it is your job? Others aren't as fortunate and so, I guess, must make do.

Top Scientist
Top Scientist

"By definition, its device is going to be among the best - if not the best - to consume its products."

Uh...no it isn't. It's the best or among the best if it in fact is. Definition has nothing to do with it. It might actually suck at everything.

"Anything the IPad or any other device the Kindle can do - and, this is the whole point - for a whole lot less."

Good god, no. Just...no.

mjones2012
mjones2012

"Why Time Should Publish a Magazine"

mjones2012
mjones2012

'Why Time Shouldn't Publish a Magazine

JL
JL

Maybe the fact that more people are NOT buying ipads b/c they are buying a kindle or fire is more important than the actual fact that they're buying a fire. Not many people will buy both.

Fatesrider
Fatesrider

I have to admit, for someone who's taking the long view about the future of the Internet, to say that a company shouldn't get into the Internet Content Delivery Business by creating its own device until they "get it right" seems amazingly short-sighted.  In this case, with the need to establish branding and a brand that leads the sheep to products rather than actually making an outstanding branded device, it's better to do something less than perfectly than do nothing at all.

Apple has had a long string of utter failures and laughing stocks in the past (remember the Apple toaster "cube" that self destructed if you put anything on top of it?).  So being "perfect" certainly isn't a criteria for building a successful brand.

therantguy
therantguy

The problem with your argument is that Apple dominates the tablet market and Apple is darn well going to make it far easier to buy the latest song or e-book from Itunes than through Amazon.

If it was 2000 and the market was dominated by the PC, I'd totally agree with you...but in 2012 I think this is a smart defensive move. Relying on hardware makers who also sell content (i.e Apple) is not a smart long term business move.

fran farrell
fran farrell

How does choosing hardware vendors from proven sources of Android devices constitute being in the hardware business. Amazon is no more hardware wizard, than it is a software system wizard. Reskinning Androids for selling stuff is an App, or a glorified website. Ordering proven hardware is a no brainer.

Josefina Armstron
Josefina Armstron

Vertical integration is the name of the game - and this means that Amazon needs to be in the hardware business...2HoursDailyTo6kMonthly.blogspot.com

Troy Henson
Troy Henson

First rule of business. Stick with what you know.

nd1090
nd1090

Apple requires a tax for buying within native applications - which means that if anyone wants to buy from Amazon - they have to go through the web browser, another device or pay the Apple tax.

Until hardware manufacturers starting with Apple do not remove this friction point - it is imperative for Amazon to be in the hardware business or face the consequences that a platform provider decides to shut them out.

It makes an awful lot of sense for Amazon to try to control as much of it's eco-system as possible.

Let's face it, it is not as if Amazon builds the stuff themselves - they use 3rd party contractors for this - but we have seen over and over that big companies want to controls as much of the critical end-points as possible. UPS design their own trucks - they do not just buy them off-the-shelf from Bob's Ford Emporium, Google went from doing search for the web to designing the browser, supplying application engines and mobile OS - for the same reason - they want to control as much of the chain as possible or someone would decide to shut them out at the drop of the hat (see Maps in IOS6).

Vertical integration is the name of the game - and this means that Amazon needs to be in the hardware business. 

FalKirk
FalKirk

"...the smartest thing Amazon can do is focus on being hardware agnostic."

Agree with the above and the entire article, 100%.

formerlyjamesm
formerlyjamesm

There are many basic Kindle owners who would disagree that another device delivers what it does: portability, e ink reading capability in sunlight, economy, overall convenience.  For tasks beyond basic reading, yes, Amazon is wasting it's time and money.  But I am happy they developed the basic Kindle.

I am happy for my iPad, too, but it's another animal from the Kindle and bulky and clumsy for simple reading compared to the Kindle.

FalKirk
FalKirk

The author is not discussing the Kindle, he's discussing the Kindle Fire. There is a big difference between the two.

formerlyjamesm
formerlyjamesm

He mentions the Fire, but speaks of all hardware.   Another fault I find is not bringing the various Barns amp; Noble devices into the discussion.

FalKirk
FalKirk

I agree with you that the Kindle has a place in the Tablet pantheon. It's e-ink is unique, it has strong battery life and as a $79 (or so) dedicated ebook reading device, it's found a useful niche.

I agree with the author that the Amazon Fire makes no sense for Amazon. I can't figure out why they are doing it and what purpose they think it serves.

As for the Nook, that is important but it's not really relevant to this discussion. The focus in on Amazon's strategy and business model. If, as the author contends, Amazon should not be in the Amazon Fire business, then the Nook simply doesn't enter the equation.