Amazon.com Inc. (Nasdaq: AMZN) may have what it takes to take on Apple Inc. (Nasdaq: AAPL) in the handset market, according to a Forrester Research Inc. analyst. In fact, Amazon is better positioned to lop off a chunk of the market controlled by Apple than many of the major competitors in the tablet sector, including Samsung, Motorola Mobility, and HTC.
Sarah Rotman Epps, a Forrester researcher, said in a report that Apple is about to face a "nasty competitor" willing to "sell hardware at a loss." She said further:
With 28.7 million iPads sold worldwide to date, Apple's lead in the tablet market looks invincible. Enter Amazon.com, whose tablet can compete on price, content, and commerce. If it's launched at the right price with enough supply, we see Amazon's tablet easily selling 3 million to 5 million units in Q4 alone, disrupting not only Apple's product strategy but other tablet manufacturers' as well. Apple will maintain a strong lead in market share, but Amazon will gain ground quickly and give product strategists from media, software, retail, banking, and other firms a reason to kick app development for Android tablets into high gear.
Epps' comments confirm that Amazon may be planning to get into the tablet PC market. It has sold millions of its Kindle reading device, and it makes sense to expand the functionality of that unit to make it competitive against the iPad or any other tablets in the market. Amazon cannot continue selling a single-use device when the reading functionality of its Kindle is being incorporated into gadgets from rivals.
It's also highly likely that Amazon -- if it introduces a tablet -- will use the Android operating system from Google (Nasdaq: GOOG). To gain market share, though, it will have to be willing (as Epps pointed out) to accept a lower margin on its tablet. The company has demonstrated a willingness to do this -- it has used that strategy effectively against other e-reader rivals, because it also sells e-books and can spread out its costs over both hardware and software.
A price war is, in my opinion, inevitable in the tablet market. (See: Apple Can Be Beaten.) Rivals are envious of Apple's huge market share, and now that it's obvious they can't win on design, spin, and functionality, they will most likely expand their arsenal to include pricing and lower profits. I am convinced this is inevitable because the tablet is potentially too critical to future growth strategies at PC-centric OEMs for Apple's rivals to give up. They must compete harder and expect Apple to respond in kind.
This brings me to what may be the sole fault line in Epps' argument. Apple is not winning just because it has the best product or the greatest ecosystem. It is also arguably price-competitive with its iPad. This has become even more obvious as competitors have failed to introduce devices that are cheaper than Apple's. Devices from Samsung and Motorola Mobility, for instance, have been in the same price range as the iPad.
Lastly, a price war will not hurt only Apple. If Amazon enters the tablet market with devices that are much cheaper than the iPad, this will also hurt other contenders for its market share. Consumers will be the biggest winners here, but component and contract manufacturers should brace for a bruising squeeze.