Amazon’s Gillette-Like Tablet Will Shave Rivals’ Margins

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Gellette made money on blades, not razors

If you look at the Gillette model, you’ll see how that shift will happen. When Gillette brought out the first of its line of safety razors with disposable blades at the beginning of the 20th century, the razors themselves were sold at a low cost.

The blades were also inexpensive, but they had to be replaced often. Gillette, which sold the blades by the millions every year, made money there. And it still does — even though Gillette stopped selling its old line of safety razors years ago, the company still sells the blades.

Compare that with Amazon, and you’ll see the parallel. While a book bought through Amazon for the Kindle doesn’t wear out, its value to the customer is reduced once it’s been read. Sure, some people read favorite books multiple times. But most people don’t want to keep ebooks around for possible rereading. So effectively once the book has been read, they need to buy a new book. The same is true for movies. And while rereading books and rewatching movies are not uncommon, that doesn’t prevent people from buying new books and movies.

Of course, if all the Kindle Fire did was let you read books and watch movies, it wouldn’t really affect the tablet industry all that much. But the fact is that the Kindle Fire will do essentially the same thing that other tablets do and in some cases will do it faster and perhaps better. It comes with a browser that supports Flash, and because some of the device’s processing is outsourced to the cloud, it’s very fast. It comes with most commonly used tablet applications, although there is still some lack of clarity on what exactly will be included. It will also come with backup storage in the cloud.

Perhaps more important, the Kindle Fire will work with all or most of the apps in Amazon’s Android app store. Again, we won’t know those details until the device hits the street. But one way or another, this is a true Android tablet, overlaid with Amazon’s new interface that’s designed to work well with (surprise) Amazon’s Web infrastructure. But the key is, it’s a tablet that costs less than $200.

Other tablet makers will have to follow

Makers of other tablets will have no choice but to match Amazon’s price. By the time the Kindle Fire ships in mid-November, the impact will already have happened. Amazon started taking orders on Sept. 28, and sales appear to be brisk. Those sales of $200 7-inch tablets are sales that won’t be coming to Samsung, Dell, Viewsonic and others. I think we’ll start seeing new pricing by the beginning of October. But Amazon still has an edge — it’s making money by selling content. The other tablet makers don’t have that option. It’ll probably be a tough October for them.