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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.



So Jeff Bezos, why are you smiling? Is that a tipping point in your tablet, or are you just happy to see me?

There have been few times in my career as a tech journalist when someone taught me something so profound that it took years for me to stop thinking about it. One of those was in the mid-90's when then-Microsoft executive Charles Fitzgerald told me that one day, voice (as in the transmission of voice) would be free.

At the time Fitzgerald told this to me, voice was very expensive by today's standards. Especially given how much of it was trapped in the analog world. Today, we get so many minutes for a pittance from the various wireless carriers that Fitzgerald's prediction essentially came true. No wait. It actually came true. Think Skype, now pushing the boundaries on video. Fifteen years later, I still can't stop thinking about what Fitzgerald said.

One reason that voice is free -- and the market condition that Fitzgerald anticipated -- is that it's dwarfed by data-intensive, bandwidth-sucking apps like video. Data-intensive apps make for big revenue opportunities for all sorts of companies from wireless carriers to content providers (think Netflix) to content delivery networks (like Akamai). But before anybody can succeed in a data intensive market, the cost to the end-user for all that bandwidth must be affordable.

Now that most voice is digital, its payload pales in comparison to the data-intensive applications that the industry is inexpensively delivering to end-users. In a mock accounting of their voice costs, even the heaviest Skype users would be surprised to learn how little of their overall bandwidth utilization is attributed to Skype voice usage. Voice would essentially work out to be free.

Few concepts have revolutionized the industry the way free voice has. But now, with its so-called iPad-killer on the way, Amazon is poised to turn the industry on its ear in a way that could rival the impact of free voice.

Amazon's Secret Weapon: Whispernet
Even if everything BYTE has been told is true about Amazon coming out with an iPad killer, I highly doubt whether its industrial design or user interface will be enough to win converts away from the iPad. Like a bug on your shirt needing a finger-flick, the iPad has had little trouble brushing-off would-be competitors.

But the hidden nugget in Amazon' s tablet news is a revelation that user might get to enjoy the same contract-free 3G connectivity that current Kindle owners have come to rely on. Imagine the iPad with free connectivity to a giant hot spot that covers a significant portion of the United States. That could be what we're talking about here.

You've heard of free voice? This takes it one notch further. If (an unlikely "if") Amazon delivers a general purpose multimedia tablet with unlimited, Kindle-like, contract-free 3G connectivity, we will have just entered the world of free data. Like the day that the tipping point of free voice passed, there would be no turning back. Apple and Google would be left with no choice but to respond, pushing the industry beyond the point of no return.

The big question right now is, "Is this for real?" Can Amazon really deliver a general purpose (compared to the specific purpose of the Kindle) multimedia tablet with unlimited, Kindle-like, contract-free 3G connectivity?

For the free 3G-connectivity that comes with its Kindles, Amazon relies on Sprint AT&T [Editor's Note: Amazon's US version of the Kindle relied on Sprint, but was discontinued in 2009 in favor of the International version that domestically relied on AT&T). But, most of that 3G-access is for the purpose of downloading electronic books that users purchase from Amazon. Somewhere on some Amazon bean-counter's spreadsheet, the cost of the bandwidth required to download an e-book (even if it's multiple times for multiple Kindle devices) is built into the cost of the book.

Should Amazon release a general purpose iPad killer that's just as capable as the iPad at using free bandwidth-sucking applications like YouTube, the spreadsheet that shows the cost of the bandwidth being covered by the margin in the content would undoubtedly blow up.

So, what gives? Has Amazon Jeff Bezos turned into some maniac, hell bent on disrupting the industry at any cost? Has Sprint AT&T figured out how to leverage a nearby black hole in a way that magically scales its 3G network at no additional cost (a benefit that it would pass along to customers like Amazon)? Answer: None of the above.

Sprint AT&T hasn't unlocked the hidden power of the universe and Wall Street would crucify Amazon for writing a blank wireless check to its customers. If there's truly a general purpose multimedia iPad-killing tablet coming from Amazon, my guess is that it will not have unlimited 3G access.



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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