Why Apple, Google can learn from Amazon's digital strategy

Amazon.com is trying to get its digital music and video on as many gadgets as possible as the world’s largest Internet retailer replicates a strategy that paid off for its Kindle e-book business.

The theory is that if customers can play and watch Amazon music and video on all their existing devices, they are more likely to purchase the content from Amazon rather than competitors like Apple’s iTunes and Netflix.

The latest example of this emerged on Wednesday, when the company unveiled a new iPad app that lets customers stream and download Amazon videos on Apple dominant tablet computer.

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Earlier this week, Amazon updated its Cloud Player digital music app and said it would soon be available on Roku Internet TV boxes and the Sonos home music streaming system. The app is already on Apple’s iPhone and iPod Touch, Web browsers, smart phones and tablets running Google’s Android and phones running Microsoft’s Windows operating system.

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Developers and analysts say Amazon is likely working on new mobile devices of its own. However, the company is also focused on getting its digital media apps installed on the massive base of gadgets that companies including Apple, Google and Samsung have already designed and sold.

“A key objective is to sell more stuff, whether physical or digital. The way we do that is by looking at what problems customers have that we can solve,” said Bill Carr, vice president of digital music and video at Amazon.

“They want to read books, listen to music and watch TV shows and movies wherever they are and they don’t want that to be hard work,” he added. “If the customer experience is better, they want to do it more often.”

Amazon dominates the e-book market partly because customers can buy once from the company and read the content through Kindle apps on devices including Apple’s iPad, iPhone and Mac computers, PCs, BlackBerries, Windows phones and smart phones and tablets running Android.

Amazon’s digital music and video businesses have not had the same success. Around since 2007 and 2008, their market share is less than 15 percent, according to The NPD Group. Apple’s iTunes store is the clear leader in digital music, with over 50 percent of the market. Netflix is dominant in paid digital movie rentals, with 55 percent of that market in the fourth quarter of 2011, according to NPD.

Amazon is also making a push in mobile games, wooing developers to take on Apple and other platform operators.

“It’s so much easier and frictionless to buy from iTunes and play the content on your iPhone, iPad or iPod even if the content is more expensive than on other platforms,” said Atul Bagga, an analyst at Lazard Capital Markets.

If Amazon can help customers access its digital music and video more easily through Apple devices and other gadgets, it may boost sales of that content, Bagga and other analysts said.

“They’ve been battling for a long time and have not posed a significant challenge to iTunes yet,” said Ben Schachter, an analyst at Macquarie. “But they are not giving up. They had success with the Kindle e-books strategy and they are hoping to do it again with music and video.”

Amazon’s Carr said the company’s digital content sales have been rising fast recently.

“The availability of our apps on multiple devices is a big part of that,” he added.

Amazon Instant Video is available on Mac computers and PCs, Roku, Sony’s Playstation 3, Microsoft’s Xbox 360, TiVo and hundreds of compatible Blu-ray DVD players and TVs, according to the company.

The new Instant Video iPad app lets users stream or download movies and TV shows from Amazon’s library, which has more than 120,000 videos to rent or buy.

Members of Amazon Prime, a free shipping program which costs $79 a year, can also stream more than 20,000 videos for free and the new iPad app gives these customers access to this content too. Prime members cannot download this free content onto their iPads though.

The iPad app also comes with Whispersync, a technology first rolled out in Amazon’s Kindle e-book apps which lets users stop reading on one device and pick up where they let off on another gadget. In the case of the video app, movies and TV shows can be paused on an iPad and the videos can be re-started at the same point on other devices.

Vulnerable
Amazon’s digital content strategy could leave it vulnerable if mobile device makers and platform operators put limits on the company’s apps.

To buy books, music, movies and TV shows from Amazon when using an Apple iOS device, customers have to open the web browser on their devices and go to Amazon.com to make the purchase.

“The issue is with the terms and conditions of the iOS platform that causes us to build it that way,” Carr said. “Purchase and rent from the Web and then the content will show up inside the app.”

Amazon designed the apps this way because Apple takes a 30 percent cut of content sold through apps on its platform, according to Colin Sebastian, an analyst at RW Baird.

That means Amazon will still likely develop its own mobile devices, including new versions of its Kindle Fire tablet and possibly a smart phone, Sebastian and others say.

“The prospect of Amazon allowing Apple, Google, or even Microsoft, to sit in front of its customers is an uncomfortable position,” Sebastian wrote in a recent note to investors.

Amazon’s digital content apps for Android devices allow purchasing of content within the app.

However, Google is making more of its own devices that link directly to its own digital content store called Google Play. As this strategy expands, the largest Internet search company may crack down on Amazon apps like Apple has, according to Niccolo de Masi, chief executive of game developer Glu Mobile.

“If Google adopts a similar policy to Apple, it could be a reason for Amazon to also take a more vertically integrated device approach,” he added.

An Amazon spokeswoman declined to comment on the company’s financial relationships with Google and other vendors and partners.

Reuters