Amazon Kindle Fire and Lenovo S2-10: Why Google Should Worry

Photo: Gina Smith for aNewDomain.net

LAS VEGAS: Folks have been complaining about Android fragmentation for a while now, but it was just a phony issue until the Amazon Kindle Fire in November came along. Thanks to Amazon, Google now has a puzzle before it. Even Lenovo, with the skinny S2-10 Android 4.0 tablet shown at CES 2011 in Las Vegas just hours ago, is unlikely to get Google out of this bind. And the next move is Google’s.

Backing up, today in Vegas Lenovo announced its 10-inch, as yet unpriced, Qualcomm-based Android 4.03 Ice Cream Sandwich S2-10 tablet, first in a series of a new line due later this year. It’s a great Android showcase: the thinnest tablet ever, reps from the Chinese giant claimed today. At just .34 inches, the whizzy device with its amazing lineup of hardware specs made Google look great. The pricing is a big question — and it’ll affect the Google-Amazon issue greatly.

Here’s why. The S2-10 enters a market when Amazon managed to sell millions of loss-leader-priced $199 Amazon Kindle Fires in just weeks. We expect a $399-range iPad3 from Apple this spring. Price the S2-10 in a decent range, and maybe Google can get out of this mess and tablet prices will go down across the board. A win-win for everybody.

But here’s the problem. What it doesn’t solve is the real issue Google faces — a market message and OS fragmentation split as a result of the Fire’s quick success and its customized Android 2.2. Not good.

Some fragmentation in Android, now obvious in retrospect, was avoidable. You really can’t blame Google for revving Android rapidly. It had no choice. First it had to catch up with Apple iOS, which had a huge head start. Then it needed to take advantage of the really dramatic hardware enhancements that suddenly became available via the tablet market. That market exploding out of nowhere. Phone carriers had the option whether to pass along every Android update to their customers. Some did, some didn’t. And so fragmentation happened.

The main problem with fragmentations is it forces software developers to make some hard choices. But with ever-increasing activations of new high-end Android phones, even if developers had to abandon low-numbered Android OS revs, they sure couldn’t complain about a shrinking market.

But now that Amazon’s Kindle Fire 7-inch tablet is out and selling millions of units at its $199 loss leader price, you’ve got a situation where there are almost as many Kindle Fires in the world as there are all other Android-based tablets combined.

Now there’s your fragmentation problem. And here’s the crux of it. Definition of a true Android device: one that’s been activated with Google services. Kindle Fire isn’t.

That means that Google doesn’t obtain any of the benefits it expects to see from every new Android device: Google apps licensing fees, purchases through the Google marketplace, and most important of all, heavy use of Google apps to fuel its real business of advertising (via search, for now) and data aggregation.

Making matters worse, from Google’s perspective, is that the Kindle Fire is running a heavily customized tablet-ified shell on top of the relatively ancient Android 2.2. That’s far, far from the state-of-the-art Android 4.0x Ice Cream Sandwich OS Google is designating as the right target for smartphones and tablets alike.

The gulf between those versions–and the millions of devices that Amazon’s selling on the 2.2 side–poses a huge problem for Google as it tries to shift third-party developer attention to Android 4.0 Ice Cream Sandwich.

That job just got a lot harder. Most Android developers are not rolling in money or spare programming resources. They’ve got to be thinking hard right about now about their next move.

Should they follow Google into Google-standard Android 40. Ice Cream Sandwich–and give up on getting into the Amazon app store, missing a change to reach millions of new Fire customers?

Or do they tailor their apps for the Kindle Fire, and render themselves irrelevant in the Ice Cream Sandwich world?

What does Google advise?

Amazon could solve Google’s problem here–if it wanted to. It could probably update all the existing Kindle Fire tablets to run at least a subset of Android 4.x Ice Cream Sandwich, and of course adopt it for its next-generation of Android tablets.

If Amazon threw Android Market access and Google apps into the equation, everyone’s problem would be solved. Just like that.

Don’t hold your breath, though.

There’s not a reason on Earth why Amazon would want to that. In the space of a few months, it managed to split the Android ecosphere right down the middle.

And at the rate it’s going, it will soon own the lion’s share of the tablet market–particularly if its bigger, faster, next-generation tablets continue to shun Google Android Ice Cream Sandwich, the Google Market, and Google apps.

No. This is clearly Google’s problem to solve, if it can. Which is why you’ve probably read lots of rumors lately, all built on a single statement from Eric Schmidt to an Italian reporter last month, about Google doing its own tablet. In the Italian news piece, Schmidt said: “In the next six months we plan to market a tablet of the highest quality.”

All previous Google-sponsored Android devices have been high-end state-of-the-art devices, but journalists, bloggers, and reviewers are writing volumes about an upcoming Google 7-inch tablet that has all the bells and whistles the Kindle Fire lacks (a camera, for one of several missing things I desire) at under $199.

Is that a game changer? I don’t think so. For starters, Amazon is already losing a few bucks on every Kindle Fire. Its making its money back on the expected profits from all the shopping sales it expects. Google can afford to lose even more money than Amazon can, but it doesn’t need to give away the house. And it doesn’t want to put every other vendor of Android tablets out of business, either.

At the same time, Android doesn’t need another $600 tablet, no matter how outrageously wonderful it might be. The Kindle Fire pretty much eliminated the possibility of mass sales at that price point (though the Asus tablet is gaining momentum). It will be very interesting to see how Lenova prices its super thin, light, Ice Cream Sandwich tablet, announced at CES today. Stay tuned.

Google’s got to do something. But what?

High-end tablet prices have already started to slip, but they’re not coming down fast enough to save the market for full-fledged Android tablets from Amazon’s onslaught. If Google’s going to get into it, I suspect it will do so with a stunner of a tablet that aims to over-deliver at a $300 to $350 price point, instead of trying to undercut the Kindle Fire. Maybe that is the just-announced S2-10 from Lenovo–the Chinese maker is the number-two PC manufacturer in the world, and can afford to lose some money, too. But it’s doubtful we’ll see such a high-end product at budget rates. Not Lenovo’s style.

Google could do it, though. It isn’t too late. It might still lose $50 or more per unit, but if it can sell 10 million units at that price, Google should jump in. Given its position, $500 million would be a small price to pay for a move that would lock Amazon into a low-end island and give other Android vendors a reasonable price point to aim for.

And it would exert just the right price pressure on Apple, which–just in case anyone has forgotten–used to be the tablet terminator.

Until Amazon came along.