Is Amazon Hiding A Tipping Point In Its New Tablet? - InformationWeek

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7/29/2011
04:56 PM
David Berlind
David Berlind
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Is Amazon Hiding A Tipping Point In Its New Tablet?

If and when Amazon releases an iPad-killer of a tablet, it won't be its industrial design or user interface that might tip the industry on its ear. If such a tablet is released, it's reliance on Amazon's Whispernet and the business model behind it could be a tipping point.

Heavy Reading (a subsidiary of BYTE's parent UBM TechWeb) is a research firm with a specialty in the global carrier market. Heavy Reading senior analyst Gabriel Brown concurred that an offer of unlimited 3G access is unlikely. In an email interview, Brown asked "How will Amazon know how much data you’re going to use? This makes an unlimited offer difficult." Brown went on to explain how Amazon's model works:"

What could potentially be interesting would be if some of the services offered over the network to the tablet could be “zero-rated” from the data quota and absorbed by the service charge – as is the case with [Amazon's AT&T-powered] Whispernet, where the cost of the traffic is incorporated in the price of the book. So for example, the users downloading or streaming a video from an Amazon service may not be charged data transit because Amazon has covered that through the service fee.

"Downloading or streaming a video?" Keeping in mind that Amazon is in the video and music businesses, the idea of a Whispernet-powered multimedia tablet from Amazon starts to make more sense. Much the same way Kindle owners are absorbing the cost of Amazon's Whispernet into each book they purchase, a richer multimedia tablet from Amazon will very likely do the same for other forms of media (music, movies, and other video), so long as Amazon is in charge of delivery. Since Amazon can't easily capture the cost of the 3G network in the playback of a YouTube video, the new tablet will either prevent access to YouTube (in other words, not quite the general purpose iPad-killing tablet some were anticipating), or Amazon will find a way to bill tablet owners for usage of non-Amazon applications.

Heavy Reading's Brown says that Amazon "could create a package whereby the user is offered, say, a 1GB or 3GB per month quota for free (not really free, but you know what I mean) but must pay to top-up if necessary. This type of bundled plan is feasible and is similar to what you get if you buy a tablet through a carrier today."

There are other indicators that this is Amazon's direction. In a recent blog post on the LA Times (see Amazon's deal with NBCUniversal could open doors for new tablet), Dawn C. Chmielewski hinted that Amazon's Prime membership service could play a role in the delivery of third party content to an Amazon tablet. According to Chmielewski's post, Amazon "reached a licensing deal with NBCUniversal that will bring to 9,000 the number of movies and TV shows that customers can watch instantly, at no additional charge, through the Amazon Prime membership program."

In the context of a Whispernet-provisioned tablet, the NBCUniversal news suggests that Amazon is not only prepared to extend the Kindle-book 3G subsidization model to other forms of content, but has also figured out (on that bean-counter's spreadsheet) how to absorb that cost into a subscription model versus one where content is acquired a la carte as it is with books on the Kindle.

Even if Amazon ends up charging data fees for non-Amazon-provisioned content, a contract-free arrangement would still push the envelope in a way that could force Google and Apple to react. That's because the word "contract" is a matter of semantics. To acquire content from Amazon, you need an account, and in order for your Kindle or your Kindle software to acquire content, it has to be tied to your Amazon account. A contract exists. It's just not the same as a typical wireless contract.

In the same way that Kindles are tied to user accounts, any tablet from Amazon is likely to have the same requirement. When it comes to non-Amazon-provisioned content, that arrangement makes it possible for tablet owners to essentially have contract-free (in reality, a la carte) paid access to Amazon's Whispernet. The fee for such access would be billed through your Amazon account to your credit card in the same way any other Amazon purchase would and it could be based on a usage model, or on a quota model as Heavy Reading's Brown suggests.

When confronted with direct questions about the potential business model behind a new tablet and the role of Whispernet, an Amazon spokesperson could not comment. But another one of Heavy Reading's analysts -- Berge Ayvazian -- noted that there could be something in this for Sprint too.

Suggesting that advertising might play a role, Ayvazian said "The data charges would have to be bundled into the content and apps purchased using the device with advertising covering the cost of free browsing and surfing." In other words, there's no way Amazon is going to give away bandwidth. One way or another, it has to cover its fees to AT&T. Ayvazian said "AT&T is most likely to experiment with these business models as it tries to compete against other carriers and Apple."

But with Amazon essentially reselling AT&T's bandwidth, AT&T doesn't have to do a whole lot of experimenting. It just has to make sure its network delivers good service while Amazon drives the company's bottom line, and the industry to a new tipping point.

David Berlind is the Chief Content Officer of BYTE's parent UBM TechWeb. He can be reached at [email protected]

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