Why Amazon can't win a tablet price war against Google

Computerworld - When you order something from Amazon, it comes in a box.

Let's say you browse the Amazon.com website looking for a book, a wristwatch or a muffin pan. When you find the object of desire, you click an "Add to Cart" button. Amazon already has your credit card and address, so it's easy for you to buy and for them to sell. The cardboard box your item arrives in is the physical manifestation of Amazon's fulfillment of your order.

Boxes are important to Amazon's business. But they're not in the box business. They don't make money on boxes. Amazon is happy to lose a little money on boxes because it enables them to profit from what's inside the box.

To Amazon, a tablet is just another kind of box.

Electronic products like music, movies, e-books and digital publications are part of Amazon's business. An e-book is an item for sale, just like a paperback. And Amazon wants to control the order-fulfillment experience just like it does with cardboard boxes. So it makes tablets.

You can divide the tablet universe into three categories: 1. Companies that are in tablet hardware and online content and services businesses; 2. Companies that are in the online content and services business only; and 3. Companies that are in the tablet hardware business only.

The first category has two players: Apple and Sony. In both cases, Apple and Sony have business models that depend on making revenue and profits from the sale of tablet hardware, as well as from digital content and online services.

Apple has iTunes, and Sony offers the Sony Entertainment Network that sells PlayStation Network games, Video Unlimited movies and TV shows and Music Unlimited music.

The second category are those companies involved in selling digital content and online services, but which use tablets as boxes. They're happy to make no money on tablets -- or even lose money -- as long as they can give their digital offerings an advantage over competitors. This category includes Amazon, Google and Barnes & Noble.

The third category includes companies that sell tablets for profit, rather than as containers for digital content and online services. This category includes Samsung, Asus, Research In Motion, Acer, Motorola, Toshiba, Archos and many others.

All three categories will continue to exist side-by-side indefinitely, but there will be winners and losers within each category.

Why Apple will dominate the first category forever

In any standards-based, network-effects-based, application platform-based or aftermarket-based business, the rich tend to get richer. The more customers and partners any company has, the more attractive that company is to additional customers and partners.

The tablet market is all four. Apple is by far the richest, and is therefore in the enviable position to keep dominating.