Amazon Answers iPad with Move Toward a Super-Kindle

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In the tech world, being a pioneer is not necessarily an advantage. Just look at the search engine business: Back in the 1990s, early arrivals like Alta Vista and Lycos looked strong, but a late entrant to the game -- Google (GOOG) -- came along with something better and vaporized the competition.Apple's (AAPL) Steve Jobs understands this principle well; he has built an empire by being late to the game, as he was with the iPod and iPhone. Basically, Jobs waits until the pioneers build a beachhead in a new market, and then he pounces on it.

In its latest move from the Jobs playbook, Apple has produced the iPad, which is expected to change the game in the red-hot category of e-readers. More specifically, it appears that Apple wants to crush Amazon's (AMZN) Kindle.

The Kindle was already looking somewhat dated because of its ordinary keypad and bland screen. It seems that consumers want a richer experience -- that is, a touchscreen, as well as colorful graphics and downloadable applications.

To deal with this, Amazon.com is taking action by purchasing a tiny tech firm called Touchco that it hopes will provide the next Kindle with an advantage over the competition.

Building a Better Touchscreen


Based on technologies created at New York University's Media Research Lab, Touchco is an early-stage startup focused on an interesting technology: Interpolating Force-Sensitive Resistance, or IFSR. This technology uses advanced sensors for multitouch computer interaction. And the touch need not be from fingers, or a special pen. It can be from literally anything -- and at an unlimited number of points simultaneously on its perfectly transparent screen.

And Touchco says that its technology is more cost-effective than existing solutions, and its power consumption is lower than the alternatives.

All in all, it's revolutionary stuff; if implemented in a Kindle, it should be a differentiator.

Tech Issues Are Only Half the Battle


From a technology standpoint, Amazon's deal looks spot-on. But it may not be enough.

With Apple launching the iPad within the next two months, Amazon.com will need to act with lightning speed. This means not only integrating Touchco's technology into a new device, but also adding an app store and building a developer community.

Even if it successfully pulls that off, Amazon could still face customer anger. If the next version of the Kindle is a quantum-jump improvement over existing versions, how do you think the existing customer base will feel?

Meanwhile, Amazon has already angered the publishing industry with its cut-rate pricing strategy for best-sellers. Apple, on the other hand, has taken the opposite approach, which has made it easier to bring publishers on board (who desperately need higher more revenues).

And while Amazon is playing catch-up, Apple will be busily leveraging its own design skills, touchscreen technologies and massive developer base -- there are more than 140,000 apps on the iPhone already, and most of them will work on the iPad. Obviously, the marketing power will be staggering.

So for Amazon.com, the stakes are clear. According to Cowen & Co., the prediction is for an erosion of market share from 80% to 30%. True, as the e-reader market continues to grow, Amazon.com will continue to benefit. But, it may not be the kind of growth investors anticipated.
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