Tablet Update: iPad, Kindle Fire, Win 8

I care a lot about the tablet category because, quite selfishly, I see them (and eBooks) as a way out of the book sales doldrums. According to the Association of American Publishers, eBooks sales grew by 202% in the past year, while the Trade Category declined by 34%. It ain’t rocket surgery to figure out which way the wind is blowing.

So it is with great interest that I find not one but two reports out today, one about tablet sales, the other about tablet projections. Two very different reports, one with a consumer focus, the other with a business focus. Maybe not so different…

THE FIRST is from Amazon, continuing their positive reports for Kindle sales through the holidays. Amazon are typically cagey in their report, saying only that “customers purchased well over 1 million Kindle devices per week.” Those numbers are being helpfully interpreted as 4 million Kindle units in December, most of them the new Fire, according to Casey Johnston at Arstechnica. That projects to about 6 million units sold since the new Kindle Fire became available in mid-November.

By contrast, Apple is projected to sell 13 million iPads through the last quarter of 2011, according to JP Morgan analyst Mark Moskowitz, in a note that adjusted iPad numbers down from 13.3 million because of strong Kindle sales.

THE SECOND report comes from market research firm NPD. They’ve had some dodgy reports in the recent past, including one that excluded iPad sales from its research estimates. Ok, bygones be bygones. Whatever. NPD are reporting now on tablet purchase considerations in the business sector over the next 12 months. Their findings?

Nearly 75% of U.S. small and medium businesses (SMB) plan to purchase tablets over the next twelve months. That number goes higher as business size grows; among larger firms, 89 percent plan to purchase new tablets in the next 12 months. Average spend ranges from a high of $39K to a low of $2K (the latter firms with under 50 employees). Most of those tablets will be the iPad.

“Businesses of all sizes appear to be determined to capitalize on the tablet phenomenon,” said Stephen Baker, vice president of industry analysis at NPD. “The iPad, just as it is in the consumer market, is synonymous for ‘Tablet’ in the business market, leaving Apple poised to take advantage of the increased spending intentions of these SMBs. NPD’s research shows that iPad purchase preference is higher among larger firms than smaller ones, which is an important indicator that Apple is gaining traction far outside its typical consumer space.”

Given the “consumerization of IT,” we also expect a fair number of tablets to enter the business market through the hands of employees. We’ve seen it before. Which leaves us with a few questions.

  • Will the Kindle Fire Go Enterprise?
  • Too soon to tell, but if past is prologue, one will see employees bringing their Fire to work. The biggest near-term hurdle for the Fire is its lack of cellular (3G-4G) support, which in the past has enabled employees to get around corporate WiFi restrictions.
  • What about Windows 8 Tablets?
  • At least one analyst, Bernstein Research, is bullish on Windows 8 tablets. According to Todd Bishop, Bernstein believes Windows 8 tablets to be most attractive to business users, in part due to compatibility with existing line-of-business apps.
  • It’s not the big market chunk that the consumer opportunity represents, but it should give Microsoft a toe-hold where other competitors (Android, anyone?) have struggled failed. I am less optimistic that these tablets will come through the employee back door, however. I am predicting it’s an IT purchase all the way.

We shall see.

Kindle Fire: By the Numbers

The Kindle Fire is emerging as a certified hit for the holiday season. With a few lumps of coal thrown in for good measure. Here’s a look at the Kindle Fire, by the numbers.

No big surprise on the last one, except that Android is continually positioned as an “open” platform. Which implies that Kindle Fire users should also be able to get to the Google Android Market. They can’t. I guess that’s what “forked” means.

The Mess That’s Called eBooks

As we wrote back in November, there’s a battle going on in the world of eBook publishing. The topic then was Amazon using wholesale pricing as a benchmark for author royalties as it promotes its Prime Program (and juices sales of the Kindle Fire). The upshot for content creators: You probably want to review your publisher contract and make sure you are fairly compensated (as a percentage of the retail price, not wholesale).

The battle itself, however, is being fought on multiple fronts. In August 2011, the Hagens Berman firm filed a class-action suit claiming Apple and five top U.S. publishers “illegally fixed prices of electronic books, also known as e-books.” They are demanding a jury trial, always a sign that they want the most generous settlement possible.

The basis of the Hagen Berman complaint is the claim that the five publishing houses “forced Amazon to abandon its discount pricing and adhere to a new agency model, in which publishers set prices. This would prevent retailers such as Amazon from offering lower prices on e-books.”

If Amazon defied the publishers and tried to sell e-books below the publisher-set levels, the publishers would simply deny Amazon access to the title, the complaint details. The defendant publishers control 85 percent of the most popular fiction and non-fiction titles.

The publishers, the complaint goes on, feared Amazon’s pro-consumer pricing, especially as it threatened the established brick-and-mortar model.

Now it appears that the European Union’s antitrust commission wants a piece of the action. The E.U. investigation will look into charges that “international publishers… have, possibly with the help of Apple, engaged in anti-competitive practices affecting the sale of e-books in the European Economic Area (EEA), in breach of EU antitrust rules.”

As Philip Elmer-Dewitt notes in this Fortune piece, the E.U. appears dead serious. “In preparation for the formal proceedings announced Tuesday the commission raided the offices of some or all of the five publishers named in the probe.” [Actually, the E.U. press release calls them "unannounced inspections." Ah, so diplomatic.]

In case that isn’t interesting enough, back in August 2010, Connecticut Attorney General Richard Blumenthal also investigated potential anti-competitive e-book practices. The A.G.’s complaint?

Attorney General Richard Blumenthal is investigating agreements between the country’s largest e-book publishers and two of the largest sellers — Amazon.com, Inc. and Apple, Inc. — that may block competitors from offering cheaper e-book prices.

WTF? Who’s colluding with whom?

Takeaways
(Hey, I’m no lawyer, but I am an interested party. At least I think I am):

  • If you are a content creator, an Amazon win here means get ready for wholesale to be the new retail.
  • If you are a consumer, an Amazon win means e-books will fly off the shelves at giveaway prices, as Amazon juices its Kindle sales.
  • If you are a publisher, an Amazon win means they are one step closer to moving into the publishing business. As Philip Elmer-Dewitt notes, Amazon is the 500-lbs gorilla in the e-book biz.

And who knows, at the moment, Amazon may need all the help it can get. There’s already speculation that as many as a half-million Kindle Fires will be returned post-holiday (via Philip Elmer-Dewitt). Usability guru Jakob Nielsen, meanwhile, is reporting that “Amazon.com’s new Kindle Fire offers a disappointingly poor user experience.” It gets worse… Over the Black Friday sales season, iPad and iPhone were dominant [Chart of the Day].

Even 500-lbs gorillas deserve some good news now and then…

Google Responds

iSuppli reports that the Kindle Fire has vaulted into second place in the tablet market. At 3.9 million shipped units, Kindle Fire numbers are nearly triple its nearest competitor (Samsung, at 1.3 million). Add in the Barnes & Noble tablet, with shipment estimates also at 1.3 million, and “forked” Android devices ring in at a solid 19% of market share.

The RIM tablet, meanwhile, is headed in the other direction, with a high level of unsold PlayBook inventory. There is some irony here, as Amazon used the PlayBook as a reference design for the Fire.

We’re not surprised at how this has turned out. The end-to-end model, with hardware, software and a retail presence, is emerging as the best way to incentivize consumer tablet purchases. Up to now, however, we have focused on Apple, Amazon and Barnes & Noble — they have the strongest end-to-end presence.

One wonders how Goggle will respond to this competitive threat — threat because, while Amazon and Barnes & Noble use Google’s Android to power their devices, they substitute their own ecosystem for that of Google’s Android. That’s a willful avoidance of Google’s advertising model.

Wonder no more. Claire Cain Miller and Nick Bilton, writing for the New York Times, report that Google is working “on a delivery service that would let people order items from local stores on the Web and receive them at their homes or offices within a day.” Combined with Google Wallet and Google Offers, the services offer a proxy for the retail presence of Apple, Amazon and Barnes & Noble.

Will it work? Well, there’s a chance. Google’s biggest enemy at times is itself, with a penchant for perpetual Beta’s that lead nowhere fast. This is not necessarily a knock; all successful tech companies have a backlog of failed products. This time out, the pieces for an end-to-end retail experience do appear to be coming together. The trick for Google is to integrate these three experiences (wallet, offers and delivery) into a seamless whole.

One thinks Google may well deliver — if only because they must. Once they build a retail experience into Android, it will become (nearly) ubiquitous. The bigger question is whether anyone will care. Preliminary surveys indicate consumers don’t trust Google Wallet for mobile payments. That’s a big hurdle to overcome.

Update: Although it may cause another set of problems, one wonders how long Google will sit on the Motorola acquisition before trying to leverage it as part of an end-to-end strategy.

The Android Dilemma

I want to sell eBooks as much if not more than printed books; they are a continuum, not a discontinuity. Devices like the iPad, Kindle and Nook help move the continuum forward. Despite that vote of confidence, I sense a certain rush to market with the Kindle Fire. It’s a competitive environment and there are certain first mover advantages, especially when the Nook is not standing still. But this rush out the door points to one of the dilemmas in the Android ecosystem. Why do I say this?

  • The Fire is running a decidedly old version of Android (Gingerbread, Android 2.3), which some critics describe as “ho-hum.” I get the sense Amazon wanted more from its signature device, but couldn’t get it in a timely manner, so they went with what they had.
  • Although Amazon has forked Gingerbread with a new UI, performance has been described as underwhelming. David Pogue: Animations are sluggish and jerky — even the page turns that you’d think would be the pride of the Kindle team. Taps sometimes don’t register. Marco Arment: Almost the entire interface is sluggish, jerky, and unresponsive. There is some minor dissent here: Glenn Fleishman writes that a Fire software update mitigates the sluggishness somewhat.
  • These criticisms aren’t unexpected. Here’s what Engadget’s Joel Topolsky said about Gingerbread one year ago: And that’s kind of the crux of our problem with Android in its current state. We don’t question the power of the OS, but the fit, finish, and ease of use simply is still not there. My own testing of last generation Android tablets (Motorola Xoom, running Android 3.0) underscores these findings; the lack of responsiveness was beyond irritating.

One year on and Topolsky is practically gushing about the most recent Android build, Ice Cream Sandwich (4.0) : I want to note that moving around all of these screens is buttery smooth. There’s no lag, no stutter. Animations are fluid, and everything feels cohesive and solid.

What a difference a year makes. And this gets to the heart of the Android dilemma: it’s either wait for Google to get it together or forge forward on your own initiative. Amazon couldn’t wait, although word is that 4.0 is the first “good” version of Android. I expect Amazon will transition to Ice Cream Sandwich in due time. The sad thing is that current generation Fire’s don’t have as much flame as they could have. Worse yet, Amazon may have chosen a strategy that forever keeps them at least a generation behind. But Google and Amazon both have some incredible engineers. They might be able to figure this out.

Pay to Play

Two seemingly unrelated stories caught my eye today. The first is news from Amazon that it forecasts a “far weaker-than-expected outlook for the crucial holiday season quarter.” The reason? Spending on ramped up production for new Kindle models, one in particular:

It has spent heavily on its new Kindle Fire tablet computer and despite the overwhelming response that it has received prompting an increase [in] its production, Amazon said it might lose as much as $200 million in the fourth quarter.

Then we read about the new Bloomberg TV app for the iPad. Assume for the moment that the pundits are right in predicting this is the future of TV. Here’s the money quote:

The app is currently available for iPad devices only. Okaro [global head of Bloomberg mobile] says an edition for Android will come “in due course” but the iPad “is where the audience is at the moment.”

You have read on these pages that we don’t see the Amazon Kindle as a direct competitor to the iPad or, for that matter, the (so far anemic) Android tablet category. We stick by that. What’s of interest is Amazon’s willingness to sustain losses to get onto the playing field. At this point, they’re sounding more and more like “the other guys” in the Android tablet market. Spend big bucks on a device. Sell at a loss. Lower your expectations if not outright cancel the project (as HP did with its WebOS tablets).

We still think Amazon has a “better way,” because it adds compelling content to the equation. That’s something (almost) everyone else in Android’s extended family has neglected, to their detriment. But once more, Amazon is asking its investors to be patient as it buys market share.

I don’t know that Bloomberg can anoint anyone. Yet I’m curious as hell to see which member of the extended Android clan gets Bloomberg TV first. My one dollar bet is that we’ll see it debut on the Kindle Fire before it hits the rest of the Android ecosystem’s siblings, cousins, half-cousins and bastard step-children. The Fire will sell in ways unheard of for its Android rivals and will benefit accordingly. Meanwhile, we’ll keep a close eye on whether Amazon’s business model gamble pays off. I’m guessing it will but, so far, it’s been a losing formula.