Fellow Seeking Alpha contributor Paulo Santos recently wrote an article warning that Amazon.com Inc.'s (NASDAQ:AMZN) earnings will be dissapointing. I don't want to address the earnings but rather a specific feature of the new Kindle Fire tablets: The Mayday button. Paulo thinks this will turn the Kindle into a money loser.
The Mayday button on the new Kindle Fire devices can be pressed by a user if they require technical support. Support will then show up and help the user with their problem. They can actually draw and point out things on the users' tablet.
Let me quote Paulo from his Seeking Alpha article on the Mayday button.
Amazon.com's new "Mayday" feature is being billed as innovative. It consists of an on-screen button that customers can use to call up an Amazon.com representative to help them with their tablet. I too believe this feature will result in more sales for Amazon.
But there's a problem Amazon.com hasn't foreseen. This feature will attract essentially people that feel they will need help. Thus, Amazon.com will again be exposed to adverse selection, a phenomenon it's no stranger to.
This, on an "at-cost" tablet will probably quickly make it a "loss tablet." Investors ought to be worried as even without this effect, Amazon.com's staff numbers have already been outpacing revenues for quite a while.
I think the Mayday button is a symbol of Amazon's greater strategy and after thinking about it for awhile decided I wanted to defend this experiment by the online retailer.
Businessweek talked to Bezos and he said this about the new button:
"When beta users discover and use this feature, their jaws hit the table," says Bezos, who spent two days this week briefing small groups of journalists on Amazon's new hardware lineup in lieu of a single large media event. "They are not expecting to have a tech support person appear on their screen, and once that happens they are not expecting the tech support person to actually draw on their screen."
Amazon is focused on making the online shopping experience as smooth as possible: 1 click ordering, fast delivery, free delivery and let's not forget an easy to navigate site. Bezos wants to remove any friction the consumer may encounter. This feature fits perfectly within that smooth ordering experience.
The feature is remarkable. At a time when we are used to customer service requiring you to wait a long time, forward you several times if the question is somewhat complicated and speaking from my own experience in general being an ordeal.
I think customers will appreciate this fresh button and it will add to the Amazon brand as being on the frontier of customer service.
Mayday is not for everyone
Amazon is not playing the mass market game with the tablet. It is just not as advanced and attractive to the mass market as some of the offerings of its competitors.
it is implementing a strategy of appealing to a small demographic with its tablets and slowly growing a user base from there out.
Because its tablet is designed with this customer base in mind, it is not appealing to the tech savvy crowd and slow to become adopted.
From Bezos comments in the Businessweek article I'd say they are mainly targeting families with young kids and perhaps people of age - grandparents for example - at the same time.
The new Mayday feature works well within this tactic. Santos is critical of the type of customer Amazon will draw to its product and I understand this concern. It may be too expensive to offer non-stop customer support to children and their grandparents.
Yet it also gives them a chance to win this not so tech savvy demographic over. I think this can lead to a lot of people that are hesitant to shop online - older people - discover their store and start trusting the company with their business.
They may not be techy but they are loaded
As a blogger/writer I take part in the Amazon Services LLC Associates Program run by Amazon Inc. That basically means when I recommend products to people on Amazon they pay me if the customers do buy. Earlier this week I wrote an article about how my experience as a publisher relates to Amazon's competitive moat.
Through that experience I observed that people who may not be the most tech savvy can have a lot of money to spend.
For example I have a website with information about Bridge literature that links customers to books that are valuable to them on Amazon. At one point a single customer ordered 30 books about playing Bridge and Cello. At the time it was the largest shopping spree I ever registered for a customer.
Older people are a great demographic to market too. They have money, they are not the most mobile of crowds - online shopping is actually extra convenient - and once you got them they will likely be loyal (switching costs are high because of the more challenging learning curve). If Amazon helps them to get going, they can and will spend.
Mayday may boost Kindle's market share
Market share for Amazon's tablets is not very good. In fact Data tracking firm IDC says the Kindle has a U.S. tablet market share of 4.6 percent.
The Mayday button may help the Kindle to make some gains. It solves the adoption problem of the Kindle not being something technology minded people will get excited about.
The more tech savvy crowd that is aware of the advantages a tablet device could offer their parents or grandparents and knows about all the different devices that are available will recognize that Mayday is a remarkable useful feature.
Not only is the Kindle Fire affordable - even when it isn't a success with parents or grandparents - the button will ensure that they are not called or contacted every time an error occurs or their parents forgot how to login. And let's be honest: they weren't that great or patient explaining how to solve the problem to begin with.
This will make the Kindle a good gift or recommendation.
Paulo voiced his concern that the Kindles sold at cost will now turn into "loss tablets" in his article.
I think that is a legitimate concern and it seems likely that will be the case.
However the concept of loss leaders is well established. I can easily imagine this product to be a loss leader that does contribute tremendously to Amazon's brand value and over its lifetime becomes immensely profitable as it sets up sale after sale of unrelated items by its users.
Bezos said this in Businessweek:
The classic thing people do today when they have a problem with their tablet is that they wait until their spouse or parent or children get home to help them. We think this will be a game-changer.
I didn't think it will be a game-changer - but after looking up the definition of game changer on Investopedia - I'm more inclined to go along with that definition. I don't think this will alter business models or disrupt industries but it will definitely change the way people think about Amazon tablets and likely change the way a specific demographic looks at online shopping.
Concerns that the feature will not add to profitability of the company on the short term is legitimate. It does however fit well within the big picture and Amazon's strategy as is.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I participate in the Amazon Services LLC Associates Program run by Amazon Inc. (AMZN). Basically that means that as a publisher / blogger they are an important advertiser to me.