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Which will win... Apple's hardware or Amazon's cloud/media services strategy?
In this piece, Jeff Bezos draws a clear distinction in how Apple and Amazon profit off their respective businesses. http://www.wired.com/magazine/2011/11/ff_bezos/all/1
In the iPad vs Fire comparison, Apple makes a heft margin on each device sold while Amazon is taking the long route of effectively giving the Fire away in order to gain access to all the commerce the user will execute on the device. (BTW, Apple also profits on App store transactions but what we're talking about here is the bulk of profit and more importantly the core profit strategy).
You can say "both" are winners but in the end I'd like to hear who will have the superior profit-producing strategy and why?
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8 Answers
Let me challenge the question because both companies are largely differentiated by their services strategy and razor/blade market model from the rest of the table field. The iPad is arguably Apple’s most aggressively priced product next to the iPhone and they are able to do this because they monetize everything that goes around it. Amazon basically sells the Fire at cost because it is a near dedicated front door to the Amazon store. In effect both products are gateways into follow on profits for both vendor and both vendors lead their peers with better thought out back end services.
The better question is whether folks will find the more complete iPad worth 2.5x the Fire’s price. There the buyers are likely to segment on what you want to do with the two devices because the Fire simply doesn’t do a number of things the iPad does reasonably well. I think this showcases that Apple likely could sell a down market product (though there would be brand risk) and Amazon really needs an upmarket offering to be a true challenger. A product like the Asus Transformer or Samsung Galaxy 10.1 tied to Amazon’s back end, or an iPad Mini/Nano would provide a better head to head comparison. Right now this is kind of like comparing a Miata to a Lexus SUV.
'Win' indicates a strange view of market dynamics where the choices dwindle down to only one, in which case the market is no longer free. Who makes the most profit from two different economic models is an interesting question however. Amazon is pushing primarily content, Apple is primarily pushing hardware - or so it seems at first.
That Amazon is interested in the content is indicated by the new price for the original Kindle. It's a particularly nice device if you are just reading books. The Fire is, by most reports rather limited - it remains to be seen if those limitations are embraced or rejected by the marketplace. It is, after all only 2/3 the price of an iPad and has some interesting communications features besides. The price is likely to come down, I would guess to about $150 under pressure from other, more full featured (but cheaper made) Android 'tablets'.
But a closer look at Apple shows they are profiting from more than just sales of the iPad. The App store is a huge draw as is the iTunes store for music. Video rental and sales appear to be a much smaller segment, but may grow. However, Apple is not banking on those sales, and appears to encourage use of other markets on their i devices. Apps exist for kindle, Barnes & Noble and others to access content with no restrictions. Will that be enough to offset the higher price? I think likely, at least for now. Certainly Apple market share may dwindle in the tablet market they created (nobody considers the pre-existing Windows Tablets to be a tablet these days), but they have shown consistent profits in all markets for the past 10 years - even the difficult personal computer market, a standout exception in the race to the lowest common denominator and zero profits.
Which will win? Both, at least in the short-term to mid-term. Long-term, someone else could come along and upend everything.
The "which will win" conundrum assumes that the market can only support one or the other offering or delivery strategy. There is clearly room for both, and in some cases, there will be individual consumers with both sets of products.
The tablet market will grow to support many viable players before it matures and contracts back to 2 or 3 key players. And, even after that contraction, there will still be a broad spectrum of user needs, tastes and budgets that can be catered to by multiple products.
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Both are winning organizations. Bezos and Jobs (RIP). Apples well built and designed HW is a winner for the near term. AWS has a big head start in the IaaS segment. They have large share of Cloud Services and growing.
Both are winners in different ways. But winners nonetheless.
Momentarily I would say both, in the long run the platform on which media is delivered does not matter. And i would put my money on AWS as they have content, and lots of it. Success in hardware is always temporarily as Apple has so painfully shown us in the past..
"platform on which media is delivered does not matter"? Maybe in ideal world. In real world, it alway will be very important as to how well this delivery is done. Apple provides a very good experience to the user. Everyone else tries to emulate it, but Apple leads.
Apple has a lot of content as well. Apps store and iTunes are not something to sneeze at. Very similar digital content that Amazon has, but working across lot more devices. Music, movies, books, magazines and apps.
And of course, don't forget the iCloud.
One thing for sure - it will be very interesting thing to watch.
Up until now, Apple has a commanding lead as others have already stated. They will hopefully continue to lead even with the passing of Steve Jobs because their business model remains suited to the needs of most of us. As long as they develop cutting edge technology, their devices will continue to lead in sales regardless of what others might attempt to pursue.
Apple and Amazon are a couple of heavy weights in branding and retail marketing. But the rubber meets the road on revenue, and while both companies show strong numbers in the Americas, the larger story is more telling.
While the American markets are certainly worth noting, Apple's revenue from China accounted for $1 in every $6 generated in revenue for Apple. 2010 Quarter 4 revenue was 2.7B as opposed to 6.5B this year. The Americas still hold as the number one market for Apple with 34% growth. But China is now at number two with a 139% growth in total revenue with no signs of slowing.
As of October 28, 2011 Amazon was still in negotiations with the Chinese government to retail it's Kindle line of products and e-readers. This puts Amazon behind the curve. It will be vital to Amazon to compete with Apple in markets beyond the Americas, specifically China.
Product revenue is the lifeblood for the manufacturer. Apple has has shrewdly marketed and created global strongholds to generate amazing returns. While Amazon has impressive revenue numbers globally across all of it's sectors, it's ability to compete with Apple at the device level depends more on global market strategies and less on cloud media services.
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