Amazon is not a hardware company

No matter how good the Kindle Fire is, it's not Amazon's business.

Rafe Needleman Former Editor at Large
Rafe Needleman reviews mobile apps and products for fun, and picks startups apart when he gets bored. He has evaluated thousands of new companies, most of which have since gone out of business.
Rafe Needleman
3 min read

Amazon just launched three new Kindles, and clearly the color tablet model, the Fire, is a shot straight at the heart of Apple and the iPad. (And, by the way, it's maybe the first really good Android tablet.)

But for all the great things about the Fire, including the low price, it's important to remember that Amazon is not a hardware company. A question from our editor got me to realize this. He said, "How is it that Amazon has gone from an e-commerce site to a hardware maker ready to take on Apple?"

Because, Jim, Amazon doesn't try to make a 40 percent profit on each tablet sold. From the digital perspective, Amazon is a media company. From a broader perspective it's a marketplace (it takes in more money reselling electronics and other hard goods than it does selling content products). The Kindle line supports these businesses.

Subscriptions are the backbone of the Kindle. Amazon

That's not saying that the Kindle products are not beautifully designed or even technologically advanced. The combination of e-ink plus the built-in 3G network put the initial Kindle in an important new class of hardware; the Fire looks like a really smart private-label Android machine.

But, still, Amazon's business is not hardware. The company can lose money on each Kindle (maybe it does, maybe it doesn't) and they're still important profit machines. That's why there are Kindle apps for other platforms: Windows, OS X, iOS, Android, and the Web. The more people that can read Amazon-provided digital content, the more money Amazon makes. And the more that Amazon can lock consumers into its content, the better. That's why Kindle hardware is important to Amazon.

The Fire extends the Kindle e-Book model to other Amazon-provided digital content: Movies, TV shows, and color magazines.

Related stories:
What does Kindle Fire compete with, anyhow?
Complete coverage: Amazon's Kindle Fire and more

Amazon Kindle lights Fire under Android, RIM
Ten things we don't know about the Kindle Fire
Kindle Fire an iPad killer? Yes. It's the price, stupid

Apple and Amazon do, and will continue to, battle--not just in hardware, but in their respective digital marketplaces. Apple is winning the music business with iTunes, but Amazon competes; Amazon is ahead in books, but Apple competes. The increasing similarity of the two companies' tablet and media offerings means that Amazon is indeed "ready to take on Apple," even if the competition is coming from a completely new angle.

The key numbers to look at are not Kindle price points, but how much each user of a tablet spends per year on content for it, and how much of that money goes back to the marketplace owner and hardware manufacturer. That's why Apple is pushing all media and software purchases through its own online stores, and is making the user experience (interface and prices) as painless as it can. It's chasing Amazon's model. The two companies are meeting in the middle.

The new battlegrounds
There are a few other interesting skirmishes worth watching, as well.

First, the battle for streaming media. Media consumers have been making the move from buying physical media to buying digital media for a few years; now a second migration is on the way, away from owning media to leasing the right to play or stream it. The iTunes pay-per-track (or album) model is going to be hugely disrupted in the next few years; Amazon's pay-per-book model could be as well.

Second, the hardware ecosystem battle, for accessing media. Apple is far ahead on this one, at least technically. Airplay is emerging as a unifying platform for taking your music and video content and putting it on any speaker or screen you're close to. iCloud will extend on that. Amazon has the cloud service back-end but not quite the pervasive interface for consumers, and it will have to borrow the Airplay competitor from Google's Project Tungsten, which has a lot of catch-up to do.

See also: Jason Calacanis' And That Maniac Is... Jeff Bezos!