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Amazon and Barnes & Noble's tablet battle may be heating up

Written by Rich Fiscus @ 30 Jan 2012 2:56

Amazon and Barnes & Noble's tablet battle may be heating up

When Amazon launched their Kindle Fire tablet last year, there were significant questions about the wisdom of selling it below cost and counting on content and app revenue to make it profitability.
Less than six months later, after it became the hottest Android tablet in the world, there are significant signs that strategy has paid off in a big way. This time last year Samsung was considered the up and coming competitor for Apple in the tablet market. Now it appears the battle for Android supremacy could come down to the competition between Amazon and Barnes & Noble.

It would be fair to say Barnes & Noble fired the first shot when they introduced the Nook Color back in 2010. Although marketed as an eReader, at the time it was perhaps the first serious sub-$300 tablet. It didn't reach anything approaching iPad sales levels, but it did help Barnes & Noble take over the top spot in eReader sales during the first quarter of 2011.

Amazon responded with the Kindle Fire late last year. Even though the Kindle Fire went on sale just two days before Barnes & Noble's Nook Tablet, the successor to the Nook Color, Amazon scored a major PR coup by announcing it more than a month earlier.

Before Barnes & Noble even had a chance to show off the Nook Table, Amazon had taken hundreds of thousands of pre-orders for the Kindle Fire and analysts were predicting sales between 3 and 5 million units. We should know more tomorrow, when Amazon announces their financial results for the last quarter of last year.

More importantly, Amazon's investment appears to be doing exactly what they were hoping. It's stimulating sales of digital goods. Based on the results of a recent survey, at least one analyst has suggested each Kindle Fire equates to well over $100 in additional sales.

Once again, it's important to keep this in perspective. This is not profit on Apple's scale. It is publishers, more than Amazon, who would be the primary beneficiaries of those sales. At the same time, with online content delivery continuing to grow, Amazon needs to think about market share at least as much as profit.

They also need to keep up with Barnes & Noble. As the last of the giant brick and mortar booksellers, B&N is well aware of the need to make their mark in digital content. They may also be in a position to jump ahead of Amazon once again in the tablet market.

In order to make a spash in the tablet market last year, Amazon apparently took some shortcuts. Rather than working out a new tablet design from scratch, they reportedly used the BlackBerry Playbook's hardware as the basis for the Kindle Fire. That means B&N may still be ahead in extending their tablet offerings to higher end models.

It appears they could be doing just that during the first half of this year. The New York Times is reporting that B&N engineers are completing work on a new "e-reading device" to be released in the spring. Following so closely on the heels of the Nook Tablet, the obvious implication is that they will be releasing a larger tablet.

Display size may not be terrribly important for eReaders right now. Then again, eBooks may not be the most important content to consider. Right now video is the perhaps the real killer app for tablets, which is where a 7-inch display falls short.

Amazon was already believed to be planning a larger tablet last year. Since they didn't develop the hardware for the Kindle Fire in house, that likely means starting almost from square one in the hardware department. B&N, on the other hand already has a design department with significant experience under their belts.

On the other hand, Amazon's content and app ecosystem is significantly more complete. Not only does that represent a selling point for their tablets, it also provides them with more revenue after the sale. That, in turn, is what allows them to sell the Kindle Fire at a loss.

Barnes & Noble could win the hardware war and still lose on content. Amazon could dominate in content delivery and ultimately abandon hardware. Or the (non-Apple) tablet landscape could eventually be dominated by the likes of Samsung, ASUS, and ACER. The next iPad or Windows 8 tablets may even change the game completely.

2012 could be the year tablets truly take over mainstream computing. But don't be surprised if that looks very different than anything we have seen so far.

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