Amazon is going to launch a $50 tablet for the holiday season. It is hoping to lure more people to buy its cheap device and sell its services such as e-books and video rentals. It is also trying to challenge Apple’s stranglehold on the tablet market.
Amazon’s attempts at offering a low-cost tablet and trying to sell services through it are not new. Remember, Amazon had slashed the price of its Kindle, its e- reader, to $79. It also tried to offer a free year of Amazon Prime (worth $99 at that time) to sell its somewhat pricier Fire smartphone. After both these launches met with lukewarm reception by customers, jokes started flying: the former did n’t exactly ‘kindle’ sales and the latter was a ‘prime’ failure ($170million write-off for unsold inventory).
So what’s Amazon’s strategy behind the $50 tablet? Will it take off? It appears that Amazon is betting that the ‘razor and blade’ business model of giving the razor cheap and selling blades will eventually work at some low price point–in this case $50. However, for this strategy to work, the razor itself should not offer much of the value, but the blades should. That is, customers should value the services that accompany the device far more than the device. Here is where Amazon does not seem to get it. It is unclear whether Amazon’s services will trump the benefits of an iPad. Also, when people buy a tablet like iPad, they are buying it not only for the host of superior features, such as a sharp camera, ease of use, and synching with music (iTunes), they are also buying into the “cool factor” synonymous with Apple’s products. The cool factor is so aspirational that even many cost-conscious customers would wait to save up to buy an iPad rather than go for the lowest priced tablet. So it might be another uphill and frustrating experience for Amazon.
Amazon’s announcement could also be a tactical move of taking the wind out of Apple’s upcoming new iPad launch announcement. The idea is to freeze any potential purchases by low-end customers and make them wait until the holiday season to try out Amazon’s ultra-cheap tablet. However, I cannot recall a time when a rival stalled Apple’s sales as the latter announced its next product(s). If tactical maneuver is Amazon’s goal, it appears that the $50 tablet would only remain a cheap trick or at best provide a cheap thrill to Amazon.