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Amazon To Offer iPad Competitor Later This Year

July 14, 2011

The Wall Street Journal reported Wednesday that online retail giant Amazon.com will launch a tablet computer this year expected to compete directly with Apple’s iPad.

The Kindle-maker is looking to extend its position as the world’s largest Internet retailer by expanding its mobile offerings and selling more digital goods, according to analysts and investors.

The launch of a tablet with a 9-inch screen and running Google’s Android operating system will happen before October, WSJ reported, citing unnamed “people familiar with the matter.”

The WSJ story backs up claims by Taiwan-based tech journal DigiTimes, which has cited components suppliers as saying that Amazon plans to release a tablet in September. The device is currently codenamed Hollywood.

Analysts and investors have been expecting a tablet from Amazon for several months. Company shares reached a record high early in July, in part due to optimism of a new device, according to Colin Sebastian, an analyst at R.W. Baird.

“Amazon’s brand, user base, and digital media offering would position a tablet well against some of the other options out there,” Sebastian told Reuters. “Tablet users tend to purchase more digital items than comparable physical items, so Amazon wants more exposure to that.”

Amazon is also set to release two updated versions of its Kindle e-reader, WSJ reported. One will have a touch screen and one will be “an improved and cheaper adaptation of the current Kindle.”

Computer hardware analysts for Canaccord Genuity recently wrote in a note to investors that at least 1.5 million Amazon-branded tablets are currently being developed for a third-quarter release, with a target of up to 5 million units by the year’s end.

The move is set to increase competition between Amazon and Apple.

“In the tablet market, the No. 2 player will be Amazon,” Mark Gerber, director of technology research at Detwiler Fenton, told Reuters. “None of these other tablets have really taken off.”

Motorola’s Xoom and RIM’s PlayBook have struggled, mainly because the tablets are not clearly connected to content, explained Gerber. In contrast, the iPad is connected to iTunes, where users can buy music, videos and e-books.

But Amazon will also have a broad amount of content that its tablet users would be able to access, including Kindle e-books and music and video downloads. Amazon’s tablet may come with free access to the company’s video-on-demand streaming service for at least an introductory period, said Gerber.

Amazon also has its own Cloud Drive that lets customers store files on its servers. And an Appstore for Android smartphones and tablets gives Amazon another edge for competing with Apple.

Amazon CEO Jeff Bezos told Reuters in May that there could be room in the company for an Apple iPad rival, but declined to go into detail.

“It is very useful when you are thinking about how (with) any kind of new product introduction, probably the company is not hoping to completely kill any other company,” said Bezos. “They are hoping they can be part of something big.”

While Amazon is close to invading Apple’s turf, Alvarez and others say the company is launching a tablet for totally different reasons.

Amazon is looking for a tablet to get customers to buy more of its products. “At the margin, maybe they can make some money selling a tablet. But Amazon is really doing it to support their core business,” Bill Smead, chief investment officer of Seattle-based investment firm Smead Capital Management, told Reuters. “If you sell a new bong once in a while and keep the water clean, people will keep smoking more pot.”

Amazon’s strategy of having a device that encourages more buying is something the company has already pulled off successfully, according to Anthony DiClemente, an analyst at Barclays Capital.

Amazon announced earlier this year that it is now selling more digital books than physical books, and DiClemente said the company’s Kindle was the catalyst for that shift.

Amazon’s tablet has the potential to do the same for other products the company sells, he added. “It will strengthen Amazon’s strong hold on e-commerce activity and provide a way to move more into video and other digital content.”

Alvarez suggests Amazon is launching a tablet to tap into the mobile commerce market.

The total value of mobile payments may reach $670 billion by 2015, from $240 billion this year, according to a recent Juniper Research forecast.

“Mobility combined with online sales capability enables Amazon to be with the consumer at the time they want to purchase,” Alvarez said. “Prior to mobile commerce, Amazon had to wait until you got in front of a computer.”

It is unclear how Amazon will bundle access to its huge content resources onto a new tablet, but WSJ stated that buyers of the device will be able to “easily watch videos, read electronic books, and listen to digital music they purchase or rent from the online retailer.”

But WSJ reported, citing unnamed sources, that Amazon could be making deals with Asian suppliers that are already too backlogged with orders from Apple for the iPad 2 and do not have the resources to supply Amazon for a new tablet.

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