Amazon Finally Goes the Way of Apple and Google

Better late than never. That's the first thing that comes to my mind about online giant Amazon's (NAS: AMZN) plans to offer an in-app purchase experience, similar to the one in Google's (NAS: GOOG) and Apple's (NAS: AAPL) app stores. Such apps are popularly known as "freemium" apps.

Under this model, apps with basic functionalities are offered free to the user through the company's app store. But later, if the user wants to upgrade these apps with additional features and functionalities, he or she needs to pay. That's when a "free" app gets converted into a "premium" one -- something that was not possible on Amazon's app store before. It is a good development for the online retail company, but definitely one that has come a little too late.

How timely is this as a strategic move for Amazon?

More green for Amazon
Well, for starters, the move is certainly a money-spinning one. According to research firm IHS iSuppli, in-app purchases should clock $5.6 billion in revenue by the year 2015. That's a huge jump from the $970 million that this model was able to generate last year.

Once implemented, Amazon would derive a 30% cut from these in-app purchases, the same percentage it makes from outright purchases. And that automatically makes this an additional source of revenue for the company. I must say that's a welcome addition, especially at a time when the company is being criticized for the losses it has been incurring by subsidizing the Kindle Fire tablet. But that's not the only good thing about it.

App-ealing to developers
Freemium apps are always a source of good news for app developers. With an overwhelming number of users naturally preferring to download free apps, charging for content built within those free apps seems to be the only way out for developers. And Amazon certainly needs more developers down the line to create more apps for it. Here's why.

Currently, Amazon is way behind its competitors in terms of the number of available apps. Amazon's store accounts for more than 34,000 apps, a stark contrast to Google's and Apple's app stores, which sport more than 450,000 apps each.

The big question is: How big a difference will this really make to sales of Amazon's Kindle Fire tablets?

A difficult situation
While I do agree that offering more apps is one way of boosting tablet sales for any company, the one thing that's playing at the back of my mind is that Amazon's Kindle Fire lacks many of the basic functionalities that most users would want in a typical tablet, such as a camera. The company admitted it was one of the sacrifices made to achieve a price point advantage against larger rivals such as Apple.

And now, with Google also planning to go the Amazon way of selling subsidized tablets through its own online store, the latter is about to face serious competition. At the same time, the company's recent announcement to introduce three new Kindle Fire models does reveal its determination to stay ahead. I would certainly keep a close watch on Amazon to see how it contends with the sheer dominance of Apple and Google in the tablet space. Join me by adding Amazon to your free watchlist!

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At the time thisarticle was published Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Motley Fool owns shares of Apple and Google.Motley Fool newsletter serviceshave recommended buying shares of Google, Apple, and Fool newsletter serviceshave recommended creating a bull call spread position in Apple. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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