Yesterday I discussed the astounding success of Hewlett-Packard's (NYS: HPQ) one-day, "350,000" sale of TouchPad tablet computers, and how it proved people will buy tablets-that-are-not-iPads ... if the price is right.
There are, however, two problems with that game plan. First, the price HP chose to move its merchandise was far too low for the company to have any chance of earning a profit on the hardware. Second, it was essentially a one-day sale. Announcing the liquidation of its tablet inventories in preparation for exiting the computer biz, HP basically "emptied its clip." It sold off its merchandise in one quick explosion of deal-making. After another batch hits, HP should be ready to leave the tablet market.
If anyone's going to challenge Apple's (NAS: AAPL) dominance in the tablet PC market, though, they're going to have to take a less ad hoc approach to tablet production. They're going to have to make mongo sales, and keep on making sales until they've developed critical mass, attracted the attention of app designers, and achieved production scale to permit those mongo sales.
In short, to be a contender, a company will have to develop a true ecosystem to rival Apple's.
Hewlett can't do it. Amazon.com (NAS: AMZN) can.
Bezos, Bezos, he's our man! If he can't do it ...
That, at least, is the theory put forth in a new report from Forrester Research this week. According to Forrester, if Amazon can just do two things right, it can succeed where HP almost did. It can create the kind of iPad killer that Dell (NAS: DELL) , Research In Motion (NAS: RIMM) , Hewlett-Packard, and Cisco (NAS: CSCO) have all tried to create -- and thus far have failed. (Speaking of, where's the Cius already, Cisco?)
As Forrester sees it, success here requires Amazon to do two things right. First, it must price its tablet "significantly" below iPad's entry-level price. Second, it must manufacture its tablets in sufficient quantity (hint: more than 350,000 units) to satisfy demand and feed a growing ecosystem. If Amazon can scale up quickly, and price its product aggressively, the analyst believes Amazon could sell 3 to 5 million of these iPad-killers in its first three months, "Easily."
Of course, it's not quite as easy as Forrester makes it sound. We need to attach a rider to this particular promise. The big problem with Apple's rivals to date is that they've tried to walk and chew gum at the same time. They've tried to both gain scale in tablet sales and at the same time price their products at a level where they can earn a profit. As I argued yesterday, and as HP's TouchPad fire sale last week demonstrated, that's not necessarily the best plan.
What Amazon really needs to do is "sell hardware at a loss, as it did with the Kindle." Avers Forrester, if Amazon can do that, it will become a truly "nasty competitor" to a suddenly Jobs-less Apple. But that's just the point: In the Kindle, Amazon has already demonstrated a willingness to sell hardware at either a loss or very slim margins in anticipation of making its profits farther down the road, selling digital "ones and zeros" to run on that hardware.
If you've visited the Kindle store lately, you know that Amazon is currently hawking 6-inch Kindle e-readers for anywhere from $189 all the way down to $114 apiece. But according to tech data cruncher iSuppli, the components alone on the second generation Kindle cost not less than $185. There's a good chance Amazon cuts costs in its newest Kindle, but these price points leave little to no room for margins. Not to put too fine a point on it, Amazon is selling Kindle for a loss, and making its profits on the aftermarket. It's doing precisely what Forrester says it will need to do to build a great tablet computer and steal Apple's market share.
Foolish final thought
Forrester sees a path forward for Amazon to tackle the Cupertino Colossus -- and I agree with its reasoning. But then Forrester goes one step further.
According to Forrester, once Amazon has begun selling tablet PCs in bulk, Google's (NAS: GOOG) Honeycomb tablet OS "will suddenly appear much more attractive to developers who have taken a wait-and-see approach" on it so far. Once developers begin coding for Honeycomb, the supply of apps for devices running the software should explode from their current level of just 300 apps, thus creating a true alternative ecosystem to finally challenge the iEmpire on tablets.
Will Amazon.com succeed? Add it to your Watchlist and find out.
At the time this article was published Fool contributor Rich Smith owns shares of Google. The Motley Fool owns shares of Google, Apple, and Research In Motion. The Fool owns shares of and has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of Dell, Apple, Google, Amazon.com, and Cisco System, as well as creating a bull call spread position in Apple. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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