The Tablet Wars Heat Up -- Is It Functionality That Drives Sales Or The Available Content?

Philip M. Stone November 10, 2010 Follow on Twitter

One reason why there are relatively few traditional media apps on tablets when compared to all the other apps available is that publishers don’t like giving up high revenue percentages to the tablet vendor and they want to drive subscriptions themselves rather than via the vendor. And now some vendor cracks are beginning to show.

Amazon, that until now gave publishers just 30% of the revenue earned from a Kindle app, has now announced that it will now give publishers up to 70% of the revenue. There are some “ands” and “ifs” that may still keep publishers wary and only time will tell if Amazon needs to remove those obstacles, too -- but at least it is a recognition that if the Kindle is going to compete with market-leader iPad then Kindle needs to compete, also, with available apps.

Nearly daily there are announcements about this publication or that launching an iPad application. Seldom is there word of a new Kindle app. Kindle (Amazon) obviously hopes the reversal in the revenue split may change that.

And even with the market-leading iPad publishers have problems selling subscriptions. Apple insists it collects all the money and then doles out the 70% or so to the publisher. But Apple does not share its proprietary information on its subscribers, so publishers can’t piggyback any of their own marketing on top of a subscription. There had been all sorts of stories a couple of months back that Apple and publishers were close to a compromise on this but suddenly all fell silent.

Now Kindle is giving the same money percentage back to publishers as Apple, but with Kindle it is the publisher who sells the subscription, not Amazon; will this be enough to encourage more media Kindle apps?

Publishers believe that tablets and mobile phone subscriptions will be their saviors, but it’s going to take a while for enough hardware sales to make a difference, although the forecasts are encouraging. Market research firm Gartner says that global tablet sales this year will reach near 20 million, and by the end of next year will be close to 55 million.  And while this year North America will have some 60% of those sales, the rest of the world is expected to be in the majority by 2014 with some 57% of all global sales.

What makes it all interesting is that while iPad and Kindle have had most of the market to themselves thus far that is about to change. More and more manufacturers are entering the market, as are the software vendors, so that there will be a variety of operating systems, different screen sizes, real price competition, and many different features.

What will really make a marketing difference is when the global telecom giants get in the act and start subsidizing tablet sales, just as they are doing now for mobile phones and notebooks, in exchange for mobile broadband subscriptions.

For publishers what makes all of this interesting is that consumers seem willing to pay something for tablet and mobile subscriptions, whereas with the Internet the fact that information was free on that platform for so long means that  horse has bolted from the Internet barn before the door closed. Except for those with services that can be expense-accounted and provide detailed business and financial  information not found elsewhere (Wall Street Journal, Financial Times) there are few other successful pay wall sites out there.

But with tablets and mobile phones the feeling seems to be that since the cost of production is less – no paper, no delivery trucks and the like – then the cost of single copies and subscriptions should be less, too, but, yes, they should be paid for.

Someone who is betting some real money that people will pay for tablet-delivered news is Rupert Murdoch. He is launching a tablet-only tabloid newspaper, The Daily. It’s due to launch by year-end at $1 a week, and Murdoch says he will need 800,000 paying customers to make the project financially successful.  

It’s a considerable gamble. Total staff numbers are said to be near 150 and the budget for the first year is around $30 million, according to those on the Web who claim they know these things. The big question is how much time Murdoch will give The Daily to prove that tablets can support such an operation, especially since right now only about 4% of US households own tablets. In the past, he has shown patience with new projects and now that News Corp earnings are coming out of recession (Q1 earnings up 36%) it probably means he can afford to be more generous in giving that time.

Murdoch is absolutely convinced that tablets are the future. He told his Australian Financial Review, “I believe every single person will eventually have one. Even children.”

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