Amazon hopes more devices will drive success
Amazon (AMZN) announced five new mobile devices yesterday -- two e-book readers and three tablets, including one model designed for children. It's a flurry of activity compared to the release schedules of its competitors, but given analyst reports, there's a question of whether Amazon's chosen strategy of subsidizing such a variety of models is working.
The new devices include the high-end Fire HDX tablet, a sub-$100 Fire HD tablet, the Fire HD Kids Edition with a 2-year no-questions-asked warranty, two Kindle e-book readers, and the latest version of Amazon's Fire operating system, which is a variation on Google's (GOOG) Android. Amazon's general strategy on the device front has been to offer more options, subsidize the hardware so prices stay low, and count on keeping consumers in the company's content ecosystem.
On the morning after the announcement, the company's stock is up less than 1 percent. Investors aren't panning the new lines, but neither are they warmly embracing them.
It's an interesting but difficult business model that sits between the great successes of Apple (AAPL) and Google. Apple is the consummate controller. It owns the hardware and software, releasing a narrow range of product variations designed to combine its own incremental innovation with the successes it sees and takes from competitors. Apple has kept the lion's share of bulk profit in the market.
Google directly handles only the operating system, developing new versions and making them available at no cost to hardware manufacturers. These partners then create their own variations on devices, offering in aggregate a wide set of choices for consumers. Although less profitable than Apple's concentrated business, Android products have by far the largest market share.
When it comes specifically to tablets, Apple had 26.9 percent global market share in the second quarter of 2014, according to market research firm IDC. Samsung had 17.2 percent; Lenovo, 4.9 percent; 4.6 percent for Asus; and Acer had 2 percent. All other manufacturers together made up 44.4 percent.
Compare that to IDC's estimates for the first quarter and there is one big difference. Amazon was in the top five then, with 1.9 percent global market share. And that was down from an estimated 3.7 percent the year before. (Amazon did not respond to interview requests before publication.)
If Amazon wanted to keep prices low to gain market share, a general strategy CEO Jeff Bezos has used throughout the company's history, then it has been failing, and not just on the tablet front. Charles Arthur at The Guardian did an analysis suggesting that unit sales of the Fire Phone had been in the tens of thousands, a number so small compared to major players like Apple and Samsung that it could be an industry rounding error.
Amazon's financial performance has been disappointing in terms of earnings, and the company is too mature to keep repeating the startup mantra that growth is more important than profits. Bezos is under increasing investor pressure to deliver growth and profits. And it isn't clear that the new tablets and e-readers are a big enough change to make that happen.