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The Tablet War
Since igniting the tablet craze in April 2010, with the introduction of the first-generation iPad, Apple (AAPL) has maintained a strong grip on the sector. Apple’s iPad dominates the tablet arena with a reported 80% share of the market. And although it has lost some ground due to the recent influx of rival devices, for the most part, others’ attempts to compete with the iPad have been unsuccessful. Apple has managed to maintain an advantage in the tablet market due to its user-friendly interface, vast library of digital content, and the strength of the company’s brand.
The first-mover nature of the iPad, coupled with the brand loyalty associated with Apple, puts potential competitors at a strong disadvantage out of the gate. These rival devices need not only win over the masses in terms of functionality and efficiency, but must be cost competitive, as consumers are more likely to opt for the market leading iPad if there is not much of a difference in cost. Thus far, would-be competitors have struggled to bring a competitively priced product to the market.
The most notable disappointment among competitors’ attempts to challenge the iPad has been Research In Motion’s (RIMM) PlayBook, which was largely rebuffed by consumers, and recently suffered a number of price cuts by retailers looking to deplete inventories. The HP TouchPad from Hewlett-Packard (HPQ – Free Hewlett-Packard Stock Report) failed to generate much interest in the market, as well.
Competitors have run into difficulties due their inability to drive additional revenue through content distribution, which has forced companies to price tablets higher in order to cover overhead costs. The lack of media offerings on par with Apple’s, coupled with expensive price tags, has left the tablet market largely at the mercy of the tech giant.
However, Amazon (AMZN) recently joined the fray with the introduction of its Kindle Fire, which has the potential to give Apple a run for its money. Amazon has a loyal customer base and offers access to its own online store, which has enabled the company to price its tablet competitively, since it expects to generate profits by selling content purchased on the device. Its digital offerings include a wide range of e-books, songs, movies, TV shows, as well as access to a number of Android applications. Essentially, Amazon has the ability to provide consumers with a variety of services, as opposed to just a device itself, which is where many other competitors have failed. Too, the company will likely benefit from those who already consider themselves to be loyal Kindle customers.
In addition, Amazon’s unique infrastructure will help differentiate it from other Android devices. Its cloud-based web browser, Amazon Silk, is of particular interest, as it will allow consumers to access content at much faster speeds compared to typical browsers. The company has even addressed the potential privacy concerns a cloud-based browser could raise by adding an “opt-out” feature, allowing users to decide whether to use the cloud capabilities or not.
It appears that Amazon’s Kindle Fire may shape up to be the first device to effectively compete with the iPad, owing to its low price and the company’s plethora of digital content. Nevertheless, Amazon’s success will depend largely on how well it can push the sale of this content through the device. While the availability of such a vast media library will likely attract consumers and drive purchases, the company’s ability to profit from the Kindle Fire will depend on the extent to which customers take advantage of these offerings post-purchase.
As of now, the tablet arena remains somewhat of a monopoly, in which Apple is undoubtedly on top. But, given the increasing demand for these devices, the market offers considerable opportunity for those with the means to compete with the mogul. It is likely only a matter of time before a real competition heats up among tech players, and with the recent unveiling of Amazon’s tablet, the market may be headed for war sooner rather than later.
At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.