The ironic thing is that Amazon will actually de-fragment the Android tablet market with the Kindle Fire.... it will dominate it. It won't matter whether it's actually Android underneath or if they switch to something else (still hoping that Amazon buys WebOS from HP) but in the end it is Amazon's tablet and they will have full vertical control over it. I see it as the only possible competitor to the iPad, and Amazon's integrated ecosystem (App Store + music/book/movie content) beats even Apple's IMO. (I am an Apple fan, an Apple user, and an Apple investor. The Kindle Fire scares the crap out of me, from those perspectives.) The fact is, everybody already uses Amazon. Everybody already has Amazon accounts. Amazon already has millions of Prime subscribers for whom the Fire is a no-brainer. $200 is dead cheap. Nobody will really care that the screen area is 50% of an iPad's when the price is 40%. Hell, I am thinking pretty seriously about buying a Kindle Fire myself, and I have two Macs (three if you count my wife's) and an iPhone. $500 is "serious money" level... can't just go spend it on a whim. $200 is not quite "impulse purchase" level, but a whole lot less thought has to go into a $200 purchase than a $500 purchase.
The smartphone market is not a good predictor for the tablet market. The marketing is simply so different. Cell phone penetration is over 90%, and a huge proportion of those whose contracts come up for renewal move to a smartphone over their old feature phone. Smartphones are becoming the standard. What they consumer sees when they go into their AT&T, Verizon, T-Mobile or Sprint store is the lineup that they can choose from. Usually they will go with whatever's free unless they really have a strong desire for a particular model. Until the iPhone 4S came out and the 3GS dropped to $0 with contract, all the free smartphones were Android phones. Now that the 3GS is "free" I think that Apple will start to claw back some smartphone market share from Android.
But I was wanting to talk about tablets, and how they're different from smartphones. You don't buy a tablet on a contract, and most people don't have an old tablet to replace. 90%+ of Americans have a cell phone they will be replacing within 2 years... the cellular providers have been very good at promoting that 2-year upgrade/contract cycle. Most people will stay with their current provider and move to a smartphone. That's a built-in market for smartphones. Tablets are sold completely differently. Everybody "needs" a phone, but nobody "needs" a tablet, and nobody is going to get one for "free" subsidized by the phone company. The tablet market is determined more by old-fashioned marketing and getting stuff out there on the store shelves since there is no built-in driver of sales like there is with smartphones.
Speaking of store shelves, it is my opinion/observation that the iPad market is getting saturated, at least at the current price levels. I have seen inventory levels go WAY up in my local Wal-Marts and other stores that stock iPads. Earlier in the year, the cabinet was empty; maybe they'd get one or two in and that's all that you could see. Now the iPad cabinets at the Wal-Marts are looking pretty full, for the first time in my memory.
So I am thinking that Apple will be forced to drop the price on the iPad. To $400 at least, if not $350 or even $300. They will still make a profit, but it will be much smaller. They will lose crazy amounts of market share to Amazon if they don't lower the price. $200 is just too cheap to compete with on the merits. You have to compete on price when you're being undercut by 60% and your profit margin is 50%+.
A couple of other thoughts. People keep comparing iPhone/iPad vs. Android as being similar to Mac vs. Windows back in the 80's/90's. The simple fact is, Windows was never even close to being as fragmented as Android is now. Imagine that Microsoft released a "Windows 95, Compaq Presario 690 Edition" and a "Windows 95, Packard Bell 3200 Edition" and a "Windows 95, HP Pavilion 5030 Edition"... and then it gets worse, because you have vendor-specific versions of each of those. So multiply all of those manufacturer/model specific editions by "Best Buy Edition" and "Circuit City Edition" and "CompUSA Edition". And you couldn't get updates from Microsoft, you had to go back to the store you bought it from, and the store you bought it from would have to get the updated OS from Compaq or HP or Packard Bell... and if Compaq took a while updating the version for your particular PC, you'd be SOL. Microsoft never let things get out of hand like that. They supported lots of hardware, but there were only VERY minor tweaks that the vendors could make to Windows itself. A few extra icons on the desktop, maybe a branded desktop background and a couple of installed programs on top.
The strength of the openness/fragmentation on the desktop was in that anyone could customize the hardware. Add more RAM? Easy. Swap out hard drives? Simple. Install a network card, or a faster modem, or a faster processor? Plug it in, install the drivers if necessary, and you're done. Desktop PC cases are a large enough and user-friendly enough form factor that we can customize their innards to a huge degree. But you move to a smaller form factor, and you can't do that much to it. The components are all too integrated. In most laptops you can swap RAM, hard drive, optical drive, and that's it. GPU and CPU are soldered in. Tablets and laptops are even worse. You might get an SD card slot, but other than that, there's not a single thing you can do to alter or augment the device itself. (External add-ons, of course, are a different story.) I guess where I'm going with this is that I don't think the "openness" argument makes much sense in a market where the hardware itself is entirely closed and the device format itself limits tinkering and hacking.
In a similar vein... I have no idea why MS would allow Windows 8 to be supported by every old OEM that comes along. MS has had great success with the Xbox (and really, IMO, with most of their hardware -- I have used MS keyboards and mice for over 10 years). The Zune failed, but that wasn't the fault of the hardware (or the software, for that matter). There should be just one Windows 8 Tablet, and it should have Microsoft's name on it. Maybe two if they want to go with multiple screen sizes. Maybe even slap some Xbox branding on it. Call it the XTab. Tie it in to the Xbox with gaming and entertainment (I think I saw somewhere that a ridiculous percentage of Netflix streaming users used the 360 as their playback device). Maybe have a separate branding for the corporate/IT side (but keep the actual hardware the same -- maybe a different, more businesslike bezel and other external design, but the screen/internals would all be the same). Can you imagine an Office Tablet? That comes with a fully customized tablet version of Word, Excel, and Powerpoint, which are dead simple to sync with the PC apps, and integrated with a powerful e-mail client? Holy crap, MS could *own* the corporate tablet market just like they own the corporate desktop market. The Office ecosystem is one of Microsoft's biggest strengths, and if they leverage it with a business-oriented tablet then I think it would be a great success.
Integrated/consolidated is simply the way to go in the tablet market IMO. All the different tablet makers are basically using the same SOCs anyway. I don't see enough to differentiate them, and they're all in a rush to the bottom in terms of pricing. The OEMs are all out to slice each others' throats, and in the end there will be very little profit left to spread around, and MS will occupy a part of the market they might not want to be in. They should go with just one Windows tablet, make it Microsoft-branded with a little more premium feel than most Android tablets, and provide a great, fully-integrated experience like Apple and Amazon.
Sorry for the huge wall of text but I have been thinking about these things for a while (although I just now thought of the MS Office Tablet) and just needed to get it out. I really think that Apple will drop the price on the iPad2 before Christmas. The inventory is piling up, the sales have plateaued and they need a good kick in the pants to get selling again. A price drop is just what the doctor ordered. Sure it will cut into their crazy margins, but the more marketshare they can build now, the more they can dominate the market in the future. I think it is really going to turn into a slugfest between Amazon and Apple. Google won't have anything to do with it. Microsoft can join in if they are savvy about their marketing and leverage existing strengths like Xbox and Office.
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