Some folks sounded the death knell for Amazon.com (NASDAQ: AMZN) just a few months ago as Apple (NASDAQ: AAPL) made a splash with its newly minted iPad. But after an upgrade to its flagship e-reader and a recent drop in Kindle prices to $139, Amazon proved that it could compete with the glamorous — and pricey — iPad by carving out a lower-priced niche.
That strategy has been highly profitable. Now Amazon will invest some of that cash in a bold move to attack Apple and any mobile device that uses the upstart Android OS from Google (NASDAQ: GOOG).
Amazon’s weapon? An online app store that could suck up as much as 30% of the marketplace and feature the hottest new mobile applications.
The success of Amazon and its digital book offerings make it a perfect competitor in the app arena. Amazon said it sold three times as many Kindle books in the first half of 2010 as it did in the first half of 2009. And Amazon e-book sales also topped hardcover sales by 2-to-1 margin a recent tally. And just this week we learned that Amazon.com’s online marketplace limits buyers to five entry-level Kindles per order. While Amazon does not release detailed figures on its Kindle sales, that built-in bottleneck indicates demand is still remarkable for the low-priced gadget.
Amazon is clearly the biggest fish in the pond when it comes to e-readers and e-books – and while that’s great for now, it is a dangerous position for AMZN if the company can’t find new sources of revenue. The app marketplace is an untapped gold mine and a logical next step.
Details are sketchy. The Wall Street Journal reports developers don’t know when the store will launch — or even what it will be called. But, the Journal says, the profit opportunity is clear. Amazon will reportedly get a 30% cut of app sales. That’s on par with Apple and Google.
About 80 million U.S. users visit Amazon’s site each month, and that’s a big audience to tap into. After all, it managed to add HDTVs and shoes to its marketplace and win out by its sheer volume of customers. Why not apps?
It’s worth noting that Amazon is already starting way behind in the app game. Google’s website has 80,000 apps — but unlike the control freaks at Apple, those are largely unorganized and not screened as strictly for quality. Even with Apple’s hands-on meddling, the company’s App Store boasts about 250,000 apps.
Competing with those existing apps won’t be easy. But if Amazon can pull it off, the world’s largest marketplace can add tablet PC and smartphone apps to its already impressive array of products.
As of this writing, Jeff Reeves did not own a position in any of the stocks named here. Follow him at https://twitter.com/JeffReevesIP.
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