Amazon, Apple and Google! These are clearly the biggest three companies in the tablet market, and the owners of the only three ecosystems that really matter in the mobile Universe. In tumultuous waters such as those surrounding the imminent release of Microsoft’s Windows 8, each one of these giants is looking to secure a position in their customers hearts and wallets.
Microsoft has yet to create a mobile ecosystem that draws in users, although at this point, it is more than likely that the Redmond based software giant has realized that for each year it does not have a strong mobile platform, its competitors are gaining momentum in a market that has expanded at exponential rates over the past couple of years.
While Microsoft may be a bit new at the game, they have a funny habit of completely dominating the markets that they target. This does not guarantee the success of Windows 8 tablets, many users would appreciate it if Microsoft manages to “butterize” the transition from the PC variant to the tablet variant of their new OS.
While Amazon, Google and Apple have very different visions for conducting their mobile business at a first glance, similarities between Amazon, Apple, and Google reign obvious following a closer inspection.
Apple was first in the game, releasing their first iOS device – the original Apple iPhone – back in 2007. The iOS SDK followed in 2008, and has allowed developers from all corners of the world to design native apps for the iPhone. When you buy any iOS app, Apple makes some money.
Officially, iOS apps can be downloaded only from the AppStore. All apps have to be pre-approved by Apple before they make their way into the Apple App Store, and developers have to pay a $99 per year fee for the Standard Package, or a $299 fee for the Enterprise Package.
As of June 2012, Apple’s iOS is home for more than 650,000 apps. The total number of downloads has been reported to be higher than 30 billion.
Apple also makes some money out of their iTunes software, which allows users to purchase music, television shows, iPod games, audiobooks, podcasts, movies, and movie rentals.
With Apple, there a catch: they do not licence iOS to other manufacturers, meaning the only way to get access to the iOS/iTunes ecosystem on a mobile device is by purchasing an iPhone or an iPad. And the premium Apple customers pay for iPads and iPhones make up Apple’s main income stream. And as I’m about to explain, this premium is nothing if not huge!
According to iSuppli.com, the LTE-euqipped, 32 GB version of the Apple iPad 3 has a bill of materials of roughly $375 (with manufacturing costs added). As that version of the iPad has a retail price of $729, Apple sells the new iPad for double the price it costs to make. You don’t have to be an experienced economy analyst to figure out that this is Apple’s main income stream.
Here are the Bills of Materials (with manufacturing costs added) for the other versions of the iPad, alongside their respective retail price:
#Note: These BoMs were calculated in March 2012, meaning that the sum of money Apple spends in the present to manufacture each iPad is likely to have dropped at least 10%. As time passes, prices fall in the technology field.
Out of Google, Amazon and Apple, the latter is probably worst positioned against a potential Windows 8 success. Any customer that decides to go for a Windows 8 tablet instead of the iPad translates into a loss for Apple.
Back in September 2011, Amazon announced the budget-friendly Amazon Kindle Fire, thus marking its entrance in the tablet market. But the Kindle Fire did more than just sell 5 million units – this is an estimate based on Amazon’s statement that the Kindle Fire has captured a 22% market share in the US. The Amazon Kindle Fire introduced a business model, one that customers have embraced enthusiastically.
The business model that Amazon decided to go with on the Kindle Fire was different than anything else on the market. Amazon opted not to make a profit on the Kindle Fire, but instead on the content and apps that Kindle Fire users will purchase from the Amazon Appstore. The entire Amazon Kindle Fire line runs on a heavily modified (forked) version of Android, one that does not provide access to Google’s Play Store. Instead, Kindle Fire owners are limited to Amazon’s Appstore.
The Amazon Appstore was launched in March 2011 as an alternative to Google Play (formerly known as the Android Market). Amazon earns 30% out of each paid app, but it’s safe to say that most of the money Amazon makes out of their Kindle Fires comes through their Amazon Prime subscription-based membership and via the sale of music, videos and ebooks.
According to several reports, at the time it introduced the original Kindle Fire, Amazon was breaking even on the $199 tablet. As Amazon does not reveal actual numbers, there is no way of telling how much money Amazon has earned thanks to its initiative.
Although teardown reports are currently unavailable for the three most recent additions to the Amazon Kindle Fire (the $149 new Kindle Fire, the $199 Kindle Fire HD (7 inch display), and the $299 Kindle Fire HD (8.9 inch display), a quick look at the specs of these tablets shows that Amazon surely isn’t making too much profit on these new tablets either.
Amazon are new to the tablet game, but they have played their cards out in a unique way right from the start. As Amazon makes most its money out off the content they sell, if Amazon decides to sell their content on Windows 8 as well (which I’m willing to bet it will), a success for the first tablet optimized Windows version isn’t exactly the worst thing that can happen for the retail giant.
In addition, the ultra low price of the Kindle Fire line will definitely continue to be a magnet for clients, as Amazon prepares to launch its Kindle tablets outside the US for the first time.
Google became Apple’s rival when it released the first Android based smartphone in October 2008. Although Android was released only a year later than iOS, the operating system that Google acquired in 2005 was weaker at drawing in app developers, mostly due to sluggish sales in the first year or so.
However, despite its limited initial success, Android took off during 2010, and now the Google Play Store (formerly the Android Market) holds roughly 600,000 apps, and the total number of downloads is reported to be higher than 20 billion.
Android apps can be installed from third party app stores, or even from the developer’s website (and this is the MAIN difference between Google’s Android and Apple’s iOS / Amazon’s forked version of Android) but developers who want their app listed in Google Play need to pay a $25 registration fee. Furthermore, developers will have to pay Google 30% of all their app revenues (this obviously applies to paid apps bought through Google Play).
In the same way that the Android Market was behind Apple’s AppStore a couple of years ago, Google Play is noticeably behind iTunes when it comes to multimedia content. On the other hand, while iTunes has been released a decade before Google first started selling music, movies, books and magazines, the market for electronic content purchases is now as open as they get, meaning that Google Play will surely diversify its offerings over the next couple of years.
However, despite all the income streams mentioned above, Google is mainly an advertising company. A vast majority of the profits Google makes out of Android come via the ads it serves alongside its services: Google Search, Google Maps, YouTube (just to name a few) come preinstalled on all Google-approved Android devices.
Android is a win-win situations for Google and the Android OEMs: manufacturers do not have to pay licences for installing Android on their devices, while Google makes money out of the ads they serve. However, Google has recently turned into a hardware company via its Nexus program, one that delivers “the pure Google experience” for smartphones and tablets.
Following in Amazon’s footsteps, Google has realized that they need to make the Google Play store more attractive, and thus have released the Google Nexus 7 tablet, a budget friendly tablet that was designed to best the Amazon Kindle Fire.
According to teardown reports, the 8 GB version of the Google Nexus 7 costs roughly $184 to manufacture, without shipping costs included. Although Google virtually makes no money out of selling the 8 GB version of the Nexus 7 for $199, the 16 GB version of the Tegra 3 tab costs $249, meaning Google might just make an honest $40 for each 16 GB version they sell.
However, Google will make money out of both versions of the tabs via Google Play sales via the ads they serve alone.
Most Windows 8 users use Google as a search engine (although Microsoft will surely decide to go with Bing for the default search engine), as well as most of the other products they have (Maps, Youtube, Translate).
In addition, if Google continues to apply the business model of the Nexus 7 (and by this I’m thinking that Google might want to apply the same low-cost approach to future Nexus tablets, and perhaps even on a Nexus smartphone), they will still have a very strong sales pitch.
Out of Apple, Amazon and Google, the latter is best prepared to face the potential commercial success of Microsoft’s Windows 8.
So, each ecosystem has a representative tablet: iOS/iTunes on Apple iPad 3, Google Play on the Nexus 7, and the Kindle Fire (HD) for Amazon’s Appstore. However, Apple is the only company that makes its customers pay a premium for their devices.
Apple clearly has a huge following, but how long will fans of the Cupertino based giant agree to pay a premium of $200-$250 on the device? Many experts believe that Amazon and Google are not playing fair, and I can see why it would look that way to people who only think about profit margins. Switching to an end-user perspective however, Google and Amazon are both offering great deals for their hardware in an attempt to promote their ecosystems. Unlike Amazon, however, Google will not ship the Nexus 7 with chains and handcuffs!
Only time will tell who is currently playing their cards right and who isn’t. My money’s on Google, but feel free to disagree in the comment section below!