This holiday season Amazon will change the mobile industry in a major way. I don’t have inside info, but aggregating the public knowledge produces a conclusive prediction: a $200 Android tablet with a book reader, an app store, and free 3g+ wireless internet. A “Super-Kindle” if I may call it that. Of course the internet is not going to be entirely free, rather it will be subsidized by the content providers and the app developers.
Already you can buy a book on the current Kindle device and have it delivered at no extra cost, and with no prior data contract required, because Amazon has negotiated the connectivity contract with cell carriers on your behalf and bundled the amortized connectivity cost into the price of the book. The difference with a smart phone data plan is subtle but psychologically very important – with Kindle a user only has to pay when and if he obtains certain tangible value in return, a book he liked enough to shell out the money; while with a smartphone data plan a user pays for a data plan today, and he gets some value out of it sometime next week, or not at all. There is a huge number of people who are unable to overcome this “pay now, get something later or never” gap, and most everyone else overcomes it with hesitation and resentment.
Now, there is no reason not to apply the same model to the mobile apps. The user will pay nothing upfront for the internet connection, but he will continue to pay his yearly dues for the “Remember the Milk” to-do app. The app developer will in turn pay for his share of user’s traffic to Amazon, who will pass on the money to the mobile carriers. That’s the pricing model required to get the remaining half of the US population on the mobile device bandwagon, and Amazon will deliver it.
- The rumors about Amazon shipping their own Android tablet are widely circulated, including the FCC leaks and the Jeff Bezos’ famous “Stay tuned” comment.
- Kindle (current models) SDK is in Beta that it’s not likely to ever come out of, but the monetization thinking is entirely evident: http://www.amazon.com/kdk
- Amazon has their own Android app store. Why did they bother with making their own? Well, now it’s clear why they absolutely need one.
- Amazon Web Services has huge experience with making pay-as-you-go computing services. If anyone can do this, it’s them.
- Amazon already has billing relationship with million of Kindle users and many more regular shoppers. They don’t need to do a lot of convincing to get people started. And it’s one of the best audiences in the world – people who like paying for things. Similar to Apple users, and unlike Google users.
- Amazon strives on low margins, and they can also use content/app subsidy to drive down the hardware prices to the levels Apple can never reach due to their always high profit margins.
The described above seems to be a very likely outcome, and it will have the most reaching consequences:
- The users will be much more likely to adopt a mobile device, given the low entry cost and no upfront ongoing commitment.
- The developers will work had to reduce bandwidth usage (incidentally increasing speed), and thus the end-user cost. Current model promotes bandwidth waste as no individual developer is ever held accountable for his data usage.
- Amazon has enough clout and a direct incentive to negotiate the best rates with the carriers. This sort of “collective bargaining on steroids” will drive down the rates.
- Amazon, not the carriers, will own the data pipe billing relationship with the end users. Apple wrought billing control of mobile app purchases form the carriers’ hands, and it did a much better job of it; and now Amazon will do the same with the data pipe.
- The developers of connected apps will have a perfect excuse to bill users recurringly, thus have enough cash and incentive to actually support and update their apps. The users in turn will become accustomed to such recurring app pricing schemes, same as they became accustomed to make one-time purchases on the iPhone, which will then drive up the conversion rates. Note that recurring billing does not necessitate commitment – the user would only pay for the app if he’s using it.
- Consequently, the users will enjoy lasting, well-maintained apps.
This coming change is so profound, I would say it is as important to the mobile computing world as the emergence of the original App Store on the iPhone, if not more so.
And when the apps get taken care of, there is no reason not to try extending the same model to web browsing – a web site operator who wants to be seen on Super-Kindle can either charge the end user a quarter to read the article with the help of Amazon’s payment API, kick back some advertising revenue, or find some other way to pay for the connection. Unlike the app situation, the web sites idea is much less certain, but the potential is so huge it would be “Super Stupid” not to try.