Kindle Fire: Good For Amazon And Apple

Includes: AAPL, AMZN
by: Rufus D

There is a lot of opinion out there about Amazon (NASDAQ:AMZN) taking aim at Apple (NASDAQ:AAPL) with its new Kindle Fire android based tablet. Amazon has no intention of taking on Apple because it doesn't need to.

The Kindle Fire is the first version of what it was meant to be: a digital tour guide to all things Amazon. Loyal Amazon customers get movies, TV, and books from a dedicated Amazon content library, apps and games from a dedicated Amazon android store, cross promotion and shopping for products of all types from thousands of vendors large and small, and other Amazon services. All this is provided through the Kindle Fire using an Amazon developed browser, plus Amazon cloud support and storage.

Nobody, not even Apple, can bring all this to its ecosystem. Arguing about tech specs is irrelevant at this point as there will be a variety of Kindles with all sorts of specs coming soon enough, and a variety of promotional tie ins to go with them. The promotions can be coordinated with a vast array of Amazon retail partners. Buy x, get a reduced price or free Kindle. Sign up for y, get a free Kindle. This is something that Apple is just not able to do, and the reason is simple: these companies have different business models.

Apple is a proprietary hardware company that uses software, internet support, and media libraries to help sell computers, phones, and gadgets. Amazon is a proprietary software company that is successful in the online retail market, and which has a couple of gadgets to help sell media content and millions of other products, including many Apple products. (Amazon is a large Apple sales channel. For example, the Apple Macbook Pro MC700 is the number 1 selling notebook on Amazon.)

Amazon is emulating several Apple strategies, like a tablet, a proprietary browser, media libraries, and cloud support, but the leverage they get is completely different.

What this means is that Apple will keep its prices high for its computers, phones and gadgets, and continue to innovate in hardware and software. That is the nature of the proprietary business model it uses. It is working extremely well as Apple recently temporarily surpassed Exxon (NYSE:XOM) as the largest market cap company on earth.

Amazon is a different story. It is continuing to use its amazing software expertise based on the internet to take over a larger and larger market share of one of the biggest business on earth, which is consumer retail sales. It has barely begun to make a dent in this worldwide, and has massive room to grow. That is why its stock price is so high even though its margins are low. But Amazon's real expertise and advantage is in proprietary software. Jeff Bezos knows he is running a software company, not an online reseller, and that explains the great strategic moves he has continued to make for Amazon, while still building up the cash cow it has in online retail.

People who don’t understand this try to make tablets an Apple vs. Amazon story, but it is not. There is plenty of room for both to be very successful in their very different markets and with their very different strategies.

Disclosure: I am long AMZN, AAPL.