The many ways Amazon could price a successful tablet

Amazons anticipated tablet is expected to cost between nothing and $400, depending on who you ask. Clearly, part of the pricing equation depends on what capabilities and hardware the product, or products if there are multiple device sizes, will actually offer and use. So until Amazon officially announces its tablet entry, nobody really knows how much it will cost and what it can or cant do. Will it be a more of an eBook reader, a pure, full-featured tablet with eBook software or, like the Nook Color, something in between?

The best bet is the third option, which should keep the price under $250, especially if Amazon decides on the highly portable 7-inch screen size. A number of clues lead me to that conclusion. An Amazon tablet is sure to support Kindle reading software, but Im not sold on reading Kindle content on a large, heavy device for extended periods at a time. Theres a reason Barnes & Nobles Nook Color is dubbed the readers tablet by the company: Its small and light enough to be a full-time eReader. And like Barnes & Noble, Amazon has its own curated application store for Android software, indicating that an Amazon tablet will run modern software titles, unlike a dedicated device like the Kindle.

Media choices, a software ecosystem and a unique screen

Amazons Kindle has helped define the eBook market and it wouldnt surprise me if the company continues to leverage the Kindle experience on its own tablet. While Kindle books can be read on nearly any other tablet, Amazon could opt for a dual-dis! play on its tablet. New technologies that replicate eInk in one mode and a more traditional LCD experience in another mode have been demonstrated over the past few years but havent found their way into mainstream products. Aside from the eInk benefit when needed specifically for eBooks, these displays require less energy to run.

Amazons digital content isnt limited to books though; the company also has media options available to it and devices that run on Googles Android platform. Amazons MP3 music store is becoming the standard shop for Android music lovers, often pre-installed on Android devices. The service integrates with Amazons Cloud Drive and Cloud Player app, allowing music to be bought on the handset for direct download or for immediate streaming over Wi-Fi or mobile broadband. Amazons Unbox service provides video content the amount of which was recently expandedto 100,000 titles that could also be brought to an Amazon tablet.

A win-win subsidy

What do these options have to do with the price of an Amazon tablet? Amazon has more options than any other tablet-maker that could be used to subsidize the cost of a tablet. For example: the full price of an Amazon tablet may be $350 so that the company covers costs and makes a small profit. But what if the price was lowered to $299 as long as buyers agreed to see ads for Amazons daily deals or other shopping specials, similar to how Amazon sells the Kindle for $25 less with Amazon Offers? In this case, Amazon wins more business a! s the ta blet becomes a shopping portal and customers win with low-prices on products.

Take it a step further: could Amazon further drop the price to $199 and take a loss on the hardware provided customers agree to rent a set number of movies or buy an MP3 album each month? Maybe the $199 tablet comes with a year of Amazon Prime (free two-day shipping) service; based on the increased number of purchases Ive made since getting Amazon Prime, the company could easily recoup the tablet subsidy in short order. The point is: Amazon has levers that few others can pull in the tablet space in terms of price flexibility.

How much will consumers pay?

Its becoming clear that tablets competing with the iPad are unlikely do well if priced like an iPad. Even with $100 price reductions, theres no guarantee of success and its not until a decent product goes on a $99 fire sale before consumers buy a non-iPad like frenzied sharks in a school of fish. So no matter what Amazons tablet(s) look like or can do, I dont expect to see a $499 price point. Instead, similar to the Kindle, there could be multiple, lower price points, depending on what other Amazon services a consumer will accept with the tablet.

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The Nook Color is doing well at its $249 cost, with one million units reportedly sold in the last quarter of 2010 and several million more built for the bookseller. That price target is the upper end of Amazons tablet in my opinion: we may see an unsubsidized model in the $279 to $299 range, but probably not higher.

That figure fits in nicely with what consumers expect to pay for a tablet: The Institute for Mobile Markets Research surveyed consumers and found the median price theyd be willing to pay is $320. If correct, a feature-rich Amazon tablet priced at $29! 9 or les s could be a hit: Forrester Research today notes that at or below a $300 price point, Amazon could sell between 3 and 5 million such tablets.

Although we dont yet know all the details of what an Amazon tablet will look like or what it will be able to do, whats your take on the price? Do you think Amazon will build an Android tablet with an interface better than existing Honeycomb tablets and price it for less or will the company try to take on Apple at $499? Have at it in our poll!

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