- Written by Jared A Levy, Editor, Options Strategies Weekly
I remember my father telling me over and over when I was a kid, “Don’t be a copycat!” He told me to create and innovate, to be an individual and a leader.
Copying from your classmates in school was grounds for expulsion.
But in the world of technology, copying and cloning is rampant and has been for a long time. It’s quite easy to “improve upon” an existing product or idea and make it something seemingly new and unique.
Take the tablet market, for example. Its form factor has been around for over a decade. I remember using them in the late ’90s on the trading floor. Back then you had a special pen to maneuver the cursor and make selections.
Today, tablets are the new craze and just about everyone wants to be in on the action. Unfortunately, there may only be room for a select few.
The big winners in this game will be the content and software providers… the ones who can monetize the compulsive consumer and integrate many types of features into one device.
Google, Apple and now Amazon are the strongest contenders. But you won’t believe how another company is benefiting from this market.
Amazon
Earlier this week, Amazon.com (AMZN:NASDAQ) launched a new array of Android tablets aimed directly at Apple. The top-of-the-line “Kindle Fire” is meant to compete directly with the Apple iPad, which currently has 68% of the tablet market according to IDC.
It offers access to Amazon’s diverse goods marketplace, its bookstore and Google App store, all on the Android operating system.
The price point, which is about half of the iPad, should attract masses of buyers, but Amazon’s profit won’t come from the unit itself, which is most likely just breaking even on cost.
No, the secret here is to get folks signed up for the “Amazon Prime” membership, which not only brings in recurring revenue for Amazon, but also incentivizes tablet users to do their shopping directly from Amazon.
There is no doubt in my mind that the Fire will steal from Apple’s revenue.
I’d look for a wireless Internet partner to come to the Kindle soon… Clearwire, anyone?
Google (GOOG:NASDAQ) is in an interesting place at the moment. Not only does it get “royalties” on the operating system itself, but Google’s cloud-based software is a key part of the Android’s functionality.
Google also has a great way of integrating everything that you do on your phone and tablet.
This keeps you plugged into Google at all times, which is good for the company.
While Google doesn’t have any “goods to sell,” it will be successful at making money off its software, cloud services and operating systems, not to mention search and advertising.
I tend to favor Google because of its lack of dealing with inventory, shipping and hard fixed costs.
All in all, Google is a stock you want to own for the future of smartphone and tablet growth.
Apple
Ever notice that the Apple (AAPL:NASDAQ) App store is just called the App Store? Apple wants to be the first and only thing you think of when you want to buy music or download the latest game. ITunes and the App Store are well integrated into all of Apple’s products.
I suspect the new cloud service will be too.
ITunes is the world’s largest music retailer. Expect it to remain in that position and grow, especially with the amount of Apple devices being sold and a lack of any real competition.
Streaming movies will be the next big horizon for Apple. Of course this is already available, but the company will take this to the next level for iPad users and in the home. Netflix as we know it may die.
Apple has a brilliant marketing machine, but has been hard-headed historically. Apple’s not going anywhere any time soon… But companies like Google, Amazon, HTC, Samsung and others collectively put pressure on Apple, and the company may find itself in the same position it faced in the mid-1980s.
I don’t think it will be that severe, but don’t just buy Apple because it’s Apple.
An Odd Contender
Believe it or not, dinosaur Microsoft (MSFT:NASDAQ) collects between $5 and $15 for every Android device that is sold. Companies like General Dynamics, Onkyo, HTC and others cough up millions in fees to MSFT and its gamut of patents. Samsung is on the defensive as we speak.
Not too shabby for a company that can’t produce a successful phone, tablet or music player.
In fact, according to Trefis, MSFT made 300% more in licensing fees from HTC than it did with its own mobile operating system! Perhaps it would make more sense to drop Windows Phone 7 and help sell more Androids.
I’m serious…
MSFT shares could rise to $29, but don’t expect big things. It has historically been poor on execution and integration. Microsoft Office accounts for almost 29% of the stock’s value. With cloud computing becoming more common and Google Apps on its tail, MSFT may be losing some of that share value in the near future.
Smartphones and tablets are changing the way we communicate, play and learn. Media integration, both social and traditional, will be key for these companies.
The patent wars are not to be underestimated! Expect more consolidation in the sector and for companies like GOOG, AAPL and AMZN to continue to shine in the long term.
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