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Why Amazon can't win a tablet price war against Google

Mike Elgan | April 2, 2012
Google and Amazon are about to go to war for the future of non-iPad tablets, but Amazon's business model can't be sustained. Here's why, according to columnist Mike Elgan.

The tablet market is all four. Apple is by far the richest, and is therefore in the enviable position to keep dominating.

Apple has by far the most tablet customers. These customers are by default embracing Apple's standards, which are part of services like iCloud and iTunes. For example, people who have uploaded personal content to iCloud and invested in content on iTunes have a strong incentive to buy future Apple tablets, because only Apple's products participate in those standards.

Apple has network effect advantages. A network effect is when the value of a network increases with the number of people using it. Apple networks like iMessage and FaceTime are more valuable as more people get on them.

Apple has a huge lead in tablet-specific apps. More apps draw more people who want apps, and the size of that app market attracts more app developers.

Finally, because Apple has one basic tablet size and shape (as well as the biggest share of the market), it's a no-brainer for makers of cases, accessories and other aftermarket products to favor iPad . Having more accessories makes the iPad even more attractive to additional users, which draws more accessory makers and so on.

The biggest advantage of all for Apple is less appreciated; and that is that Apple has staked out the high-end "sweet spot" of the market. As a very well-established premium brand, Apple attracts a much higher concentration of deep-pocket big spenders. These are the people who buy Apple's content and services, as well as apps (of which Apple gets a third of the revenue). In other words, Apple has not only more customers, but better customers.

As you can see, Apple not only has a tremendous lead, it has insurmountable advantages going forward.

Apple's only category contender, Sony, doesn't at present have any prospects of significant revenue in either tablet hardware or online content and services.

Why Google has the long-term advantage in the second category

As Moore's Law, economies of scale and other clichs bring down the cost of tablets, the distance between premium tablets like the iPad and average-priced tablets will grow. As non-iPad tablet prices go down, more people will buy tablets. As such, over time, Apple will make the most money per tablet, but the majority of tablets will eventually be sold by companies other than Apple. The tablet market will resemble the smartphone market in that respect.

Google's biggest advantage is that it doesn't make or sell the hardware.

Yes, Google will probably acquire Motorola (the deal is awaiting approval from the Chinese government), but that's likely to be run as a separate and independent business.

 

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