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Is Amazon the dark horse of mobile?

The first large, successful computer companies were hardware manufacturers. IBM, DEC, HP, Apple, etc. It was a new field and the pace of technological change — and the differences between one hardware generation and another — were substantial enough that just upgrading the computer’s hardware gave people significant new functionality and features. Over time, the practical differences in the generations of new hardware decreased to the point where many people didn’t get the extra functionality in a single hardware generation — they got it by updating to the newest version of their software packages. Ultimately that’s where the largest tech companies have generated the greatest profits, and why Amazon might be able to slip in the back-door of mobile and usurp the incumbent giants of the industry.

We can already see the shift happening in mobile. The iPhone 4 sells well, but does the phone itself enable a major functional change to the average person’s daily use? Or was it iOS 4 that had the most interesting changes in it (which is also compatible with the iPhone 3GS)? There are many Android devices that have technical specifications equal to or greater than the iPhone 4, so why are users flocking to those devices? There are, of course, a variety of reasons why someone chooses a particular phone but more and more, the factors that go into that decision are actually based in software not hardware. Whether it be iTunes, a particular app on a phone, eBook availability, or something else, the software that runs and is available on mobile devices is becoming more important than the hardware platform it’s actually running on.

This is where Amazon comes into the picture. Amazon is not a hardware company. Even though they have sold (and will continue to sell) millions of Kindle eBook readers, they will make FAR more money off the sale of books (and soon software) on the Kindle devices than off the hardware itself. In fact, Amazon’s goal should be (and probably is) to commoditize the hardware to the point where they can give Kindle eReaders away for free and know they will make a profit on the customer because the average amount each customer spends will be so high. Each generation of Kindle device is adding better functionality than the last — because the technology in the Kindle device is intentionally low-end to minimize the price. But the history of technological innovation shows that the more the high end hardware is evolved, the cheaper the older technology gets and eventually it’s easy to envision that Amazon could be giving away fully functional Android tablets to customers… and being wildly profitable on the software sold to them.

What future does that imply for mobile companies today that drive great profits off the growth and sale of hardware platforms? Will RIM, HTC, Nokia, and maybe even Apple see their profitable divisions turned upside down in the next decade like the PC manufacturers (who didn’t change) of the 80′s and 90′s did as software became more important than hardware on the PC side? If any company knows how to sell consumer goods, it’s Amazon, and Apple knows how to sell digital goods. Each has strengths outside their hardware divisions that can grow into this space and be successful — but even a year ago, who would have put Amazon in the discussion of having the potential to be one of the top 25 companies generating revenue from mobile 5 year hence?

If the future mimics the past, Amazon could be in a great position to out maneuver the traditional mobile powers and be a powerhouse in mobile in the years to come.

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