Can Amazon's Kindle Fire Catch On in Piracy-Prone China?
Apple’s latest mobile devices included something Amazon’s updated line of tablets didn’t: China.
While both companies released new versions of their products last month, only Apple’s iPhone 5c and 5s went immediately on sale in the most populous nation. Amazon’s revamped Kindle Fire HDX tablets did not.
That shouldn't be surprising -- China hasn't been a big area of focus for Amazon's devices until recently. Five years after it introduced the first e-reader in the U.S., the company made its Kindle digital bookstore available in China in the fourth quarter of last year. At the time, Amazon’s CFO said the company was investing "heavily" in the country.
Since then, Amazon has opened a Chinese app store that sells only two devices: the Kindle Paperwhite and the Kindle Fire HD, its most basic tablet.
Why the slow shift to China? Consider Amazon's business model for its devices: Sell e-readers and tablets designed for the consumption of media from its online stores. That's a big challenge in a country where consumers may not be willing to pay full price -- or any price -- for digital content.
"The piracy issue is a huge one," said Edward Williams, an analyst at BMO Capital Markets. "The device, in and of itself without content, is somewhat irrelevant."
Drew Herdener, an Amazon spokesman, didn't immediately respond to a request for comment.
The stakes are huge for tech companies competing in China, which has a population of 1.3 billion. The country's e-commerce market is expected to surpass the U.S. and reach $296 billion this year, according to Forrester Research.
In the worldwide tablet market, Amazon ranked third after Apple and Samsung in the fourth quarter of 2012, according to researcher IDC. Amazon slipped to fourth place in the first quarter of this year.
One category of digital content that has found some success in China is gaming. Forgame, China’s largest developer of Web games, went public last week, surging 32 percent on its first day of trading. Some companies are focusing on consumers who want to play games for free and pay when they want extra levels or tokens.
"If you look at the free-to-play experience, that started because you have piracy issues in China," Williams said. "You acknowledge that there's an issue, but there's still demand, so you have to figure out how to adjust the business model."
Amazon has already started creating a game ecosystem, adding the ability to purchase items within an app without interrupting a game of, say, Angry Birds. The company takes a 30 percent cut of each in-app purchase – and Amazon has said those sales are fueled primarily by games.
Making money from video and music is another matter. Not only will Amazon have to strike deals with new studios and record companies, the company will need to work with them to figure out a business model that can compete with all the free content already available. And do so through its latest devices, which are not yet available in China.