Google’s Android dominance to be challenged by Amazon tablet

When Amazon rolled out its Android application store earlier this year, we speculated that the company would eventually launch its own tablet. The Wall Street Journal, citing sources “close to the matter,” says that such a device could launch before October.

Amazon’s Android tablet will reportedly have a nine-inch screen and will be designed by an Asian hardware manufacturer. The Journal also says that Amazon will release two new e-ink Kindles, one of which will have a touchscreen. The new Kindles are apparently distinct from the tablet—it’s not clear yet whether the Android device will be launched under the Kindle brand.

As we pointed out in March, an Android device from Amazon could significantly alter the tablet landscape and challenge Google’s dominance as the center of gravity in the Android ecosystem. We argued that Amazon is well-positioned to meet the pent-up demand for a low-cost tablet product that fills its own niche in the market rather than chasing Apple’s taillights. More significantly, the inclusion of Amazon’s own application store will allow the retailer to circumvent Google’s control over the platform and keep the software revenue to itself.

We discussed Amazon’s prospects as a budget tablet vendor with Sarah Rotman Epps, a Forrester analyst who has had a close eye on the tablet market. She says that Amazon can price a tablet more competitively than conventional hardware manufacturers because the company can afford to sell hardware at near cost and make up the difference by selling software and content.

Amazon has a full suite of mature content services—with support for streaming or downloading music, videos, books, and applications—that could easily be baked into a custom Android software stack. Tight platform integration and bundling out of the box would address the most significant usability challenges that users face today with Amazon’s application store and music streaming offering.

There are, however, some other major issues that Amazon will likely have to address in order to make its future Android tablet a success. The Amazon Appstore is currently only open to US consumers—a limitation that would obviously make Amazon’s Android tablet a nonstarter overseas. Conforming with disparate regional regulatory policies that govern software retail is not easy and could take some time.

The other problem is that the Amazon Appstore has some rough edges that are frustrating for third-party developers. In order to build up a suitably competitive body of applications, Amazon may need to boost its developer outreach efforts and satisfy some of the concerns that have been raised.

Implications for Google

If Amazon enters the Android tablet market, we think that it will pose a challenge to Google’s unilateral control over the platform. The core Android userspace stack is distributed under the permissive Apache Software License, but Google has historically used its ownership of the proprietary Android Market as leverage to impose boundaries on customization of the platform.

In order to ship a device with the Android Market, hardware manufacturers have to conform with compatibility standards that are administered by Google. Google uses the compatibility requirements to ensure a mostly uniform Android experience across devices and prevent certain kinds of fragmentation. The company has also reportedly used it to block hardware manufacturers from deploying services that compete with Google’s own.

Because Amazon has its own application store, the company can cut out Google entirely. Amazon can integrate its own content offerings and sell platform integration points for features like search and messaging to the highest bidder—offering Bing search or Yahoo e-mail out of the box, for example, to further subsidize the cost of the hardware. If Amazon takes that path and its product ends up being the only truly successful Android tablet, that could pose a challenge for Google.

As we pointed out in our original report about the Amazon Appstore, a viable parallel application ecosystem would significantly reduce Google’s leverage over hardware vendors. Other manufacturers might start working out deals with Amazon to adopt the Amazon Appstore on their own devices if Amazon’s tablet is a success and helps attract a broader application base to the retailer’s application delivery channel.

We have seen a very similar pattern play out in China, where Android forks like OPhone have been gaining momentum. By building their own Android application ecosystems, the Chinese mobile carriers have been able to cut out Google as a middleman and replace the search giant’s Web services with popular Chinese alternatives.

We raised this issue when we were discussing the Amazon tablet rumor with Epps. Citing slow sales in the Android Market, she pointed out that content and applications on Android aren’t exactly a huge business for Google, whereas Amazon will be able to use its retail expertise and ability to deliver a more frictionless purchasing experience to make it profitable.

Although Google and Amazon will compete in certain areas of the platform, Epps thinks that the companies aren’t naturally competitors—both have an opportunity to benefit from an Amazon tablet. She contends that the value Google will derive from Web usage—particularly search—on Amazon’s device would likely outweigh the loss from Amazon’s competition in media sales.

Epps is skeptical that Amazon will remove all the Google Web services from the tablet, but we aren’t so sure. If Amazon is really serious about competing on price, it’s difficult to imagine the retailer turning down Web service integration deals of that nature. That said, Google could still potentially benefit if any of its major services are left intact on the Amazon device.

Considering the fact that Apple is preparing to offer a potentially competitive e-mail and calendaring service with iCloud, Google might just consider itself fortunate if Amazon can deliver a popular mainstream tablet with GMail and Google Calendar.

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