Creative Strategies analyst Tim Bajarin explains how Amazon could sell a $249 Android tablet as a profitable e-commerce exercise.
Amazon.com's (NASDAQ:AMZN) forthcoming Google (NASDAQ:GOOG) Android tablet continues to be a hot topic among tech media and pundits.
One of the popular memes surrounding the machine is that the e-commerce giant could find a way to challenge Apple's (NASDAQ:AAPL) iPad by severely undercutting it on price.
How severe? Perhaps by as much as half the starting price of the $500 base model iPad 2.
Creative Strategies analyst Tim Bajarin, who has already gone on record saying Amazon
could produce at least two tablets this year, did what he described as "back-of-the-envelope" math to conclude that
Bajarin said the tablet could cost $300 to make, but Amazon would discount it by $51 to entice consumers to buy it. The Amazon would expect to make up the difference in movie rentals, music downloads, Kindle book sales, other application purchases and advertising.
Amazon, using its one-click buying method as an easy-on-ramp to customers to make purchases through its Android Appstore and regular e-commerce offerings, could make back the $51 difference within 6 months and make a profit between 10 to 30 percent over the last 18 months of the device's accounting period.
"Now imagine how this could affect the other Android vendors that are making tablets. If Amazon provides a product that is sold under cost with the goal of making up the rest of the cost and profit from apps, services, and even advertising, it could give all of the other Android vendors a serious run for their money," Bajarin wrote in a column for PCWorld August 8
"And, given Amazon's deep ecosystem, other Android vendors would find it very difficult to compete against it. When measuring by units shipped, this method could make Amazon the king of Android tablets very quickly. In fact, I would go as far as to say that it could "own" the Android tablet market."
Notice Bajarin didn't say Amazon would own the tabket market outright. With 30 million units sold in less than 18 months, Apple's iPad owns that distinction at present, Bajarin said. The company would likely protect it lead versus any aggressive challengers by slashing prices and driving the iCloud service to consumers. model.
Bajarin isn't the only analyst expecting a sharply discounted tablet.
Forrester Research analyst Sarah Rotman Epps, who ignited the Amazon Android tablet meme
earlier this year, said she though Amazon would have the best chance of challenging the iPad thanks to its content distribution, channel and brand.
She also believes Amazon would likely subsidize any slate, possibly via advertising. Epps also said such devices would give Amazon the leadership position in Android tablets
, still trailing well behind the iPad.