Amazon could cut Google out of the Android party

September 10, 2012
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Google’s hold on the Android platform in the tablet space may not be very secure. Could Amazon cut it out with a string of tablets and a tempting content package?

The original strategy Google adopted with Android was very clever. It took an open source route and enabled manufacturers to use the platform without having to license it. It allowed them the freedom to build upon the platform with no restrictions in terms of software or hardware. This led to the Android platform taking a healthy lead in the mobile market.

Even with Microsoft applying a licensing tax through its patent portfolio and threats of legal action and Apple weighing in to sue over patent infringements, manufacturers that adopted Android have done well out of it. Whether that will continue to be the case is debatable, we think it will, but Samsung’s court loss to Apple was a sore one and HTC is starting to struggle.

One of the problems with the open approach Google chose is that a company like Amazon can come along and cut it out entirely.

How does Google make money from Android?

Google is primarily an advertising company. Take a look at Google’s financials. It makes money by serving ads and it serves ads so well because it controls the medium of searching the web. The Android project is driven by a realization that much of our web browsing is moving on to mobile devices and Google needs a slice of that action to remain successful. In return for some awesome services, which are ostensibly free at the point of delivery, we allow Google to compile information on us and to use that information to serve us ads. It’s a mutually beneficial arrangement.

If people use Android, but not Google services and search, then that advertising revenue is going to dip. Apple is already working to cut Google out of the iOS platform, now Amazon is doing the same thing with Android.

The potential success of Motorola and its new Android line-up could be very important for Google. The acquisition was talked about as a way of building a patent portfolio for the legal war that has been raging, but Google could use a more varied income stream. Control of some Android hardware ensures a close partnership with Google services.

What is Amazon doing?

Amazon has caused quite a stir with its new line of tablets. The flagship 8.9-inch Kindle Fire HD with LTE leads the charge and could challenge Apple’s iPad at the premium end of the market. At the budget end we can see the 7-inch Kindle Fire HD vs Nexus 7 is going to be a battle. Then there’s the updated Kindle Fire, which, at $159, undercuts the Nexus 7 significantly and will tempt many people, even if the specs are less impressive.

What we have here is an attempt to provide people with an Amazon tablet option no matter what their budget happens to be. These Kindle Fire devices are Amazon’s storefront on its content range. The company will happily sell hardware without turning a profit on it because the aim is to secure a captive audience for content sales which will continue over months.

What do people really want tablets for? They are all about consuming content.

So who cares about specs?

When it comes to the mainstream market most people don’t care about specs. They want something good that works well but it doesn’t have to boast the highest specs around. The success of Apple’s iPhone is all the proof you need. In the tablet space Google offered a great device in the Nexus 7 and it got a lot of praise in the tech world because it represents value for money in terms of specs. The majority of consumers aren’t going to decide on a tablet purchase because of hardware. They want something that brings them easy access to content.

Who has the best content?

It really depends on what you are looking for. When we look at apps there’s no doubt that Google Play is the Android leader, but the Amazon App Store is a carefully selected subset of the best apps and games. Most people will be content with 30,000 to choose from. That’s how many of the 50,000 on offer will work with the Kindle Fire range. Then there’s the popular free app of the day promotion. It boils down to a wider choice versus greater quality control.

When we look at movies and TV shows, which are definitely a consideration for most tablet buyers, we can see that Amazon is offering over 25,000. Google, and for that matter Apple, have a much smaller selection. The music services are comparable and on ebooks Google actually has the lead with over 4 million versus Amazon’s 1.5 million, but Amazon offers a smother user experience.

Simplicity and price

You can argue about who has the best content selection but when it comes to simplicity and pricing it’s tough to see past Amazon. For $79 a year, in the US you can sign up to Amazon Prime. That gives you access to loads of content. You can stream all the movies and TV shows, commercial-free. You can also borrow a book a month from the Kindle Owners’ Lending Library with no due dates. You even get free two-day shipping on Amazon purchases to addresses in the contiguous US. Beyond Amazon Prime you also have standard rental options and new models like Kindle Serials.

Google Play doesn’t compare well with that. Neither does Apple’s ecosystem.

Cutting Google out

Amazon is a serious threat to Google in the tablet space on Android. It’s not even just about the fact that you can get easy access to lots of content at great prices; it’s also about the retail angle. Google’s ad revenue is heavily bolstered by people searching for things to buy and being served relevant ads. Amazon cuts out the middle man completely, you don’t even need to use Google’s search engine. If you already have an Amazon device and the delivery benefits of Amazon Prime then why bother to search online? You may just go with the brand you trust and buy direct from Amazon. Especially since it will be serving ads direct on the Kindle Fire lock screen.

This isn’t just about tablets either. The company may have stopped short of announcing an Amazon smartphone, but it did strike a deal with Verizon to pre-install a bunch of Amazon apps on a number of Verizon Android phones, including the new Motorola Droid Razr M.

Google needs to maintain some control over Android and it looks like more movement in the hardware market is going to be vital. Amazon looks like a serious threat. What do you think? Should Google be worried? Can Amazon usurp the platform?

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