September 30th, 2011

weird rumor about webOS

http://gigaom.com/2011/09/30/report-amazon-eyeballs-hps-webos/

Makes no sense to me. *shrug*

[h/t J.K. for pointing this out -- it really is all about buying and/or licensing the Palm patents:

http://www.informationweek.com/byte/commentary/personal-tech/tablets/231600600]

Here's a more detailed argument in favor of it:

http://www.businessinsider.com/amazon-wants-to-buy-palm-heres-why-its-a-great-idea-2011-9

A somewhat cynical perspective on this kind of rumor in general and this rumor in particular.

http://www.pcmag.com/article2/0,2817,2393883,00.asp

Basically, this is all discussing what lies between the hardware and the user experience. Could Amazon swap from Android to webOS? Sure. But the argument against is clear (if it works as it is, why switch?) and the argument in favor of it is not. If the Palm business came with enough/the right patents as part of the deal, I could see Amazon paying some amount of money just to increase it's, um, whatever you call a big pile of patents you control when you're sitting at the patent litigation table. But buying a company for the purpose of switching from a functional, shared OS to an as-yet-unproven-in-the-market OS? Those had better be some impressive performance characteristics.

ETA: Oh, I have an idea.

http://www.digikey.com/purchasingpro/us/en/articles/supply-chain/hps-touchpad-costs-328-to-build/1153?WT.z_ref_page_id=supply-chain_hp

I could see Amazon making a deal with HP if it got Amazon access to the supply chain lined up for the now moribund TouchPad. Access to parts was a huge issue in getting the tablet out this year because everything was already spoken for. The specs on the TouchPad are a great match for Amazon's missing larger tablet. With a $300 BOM for the stripped version of the tablet, Amazon could release a $375-$400 10 inch kFire, possibly in time to really mess with Apple's 2012 early-in-the-year iPad refresh cycle.

If there are indeed a whole bunch of these things in the pipeline that HP is contractually somehow obligated to, I could _definitely_ see Amazon relieving HP of that obligation. What OS would then wind up on it is a whole other question.

The Bull-whip Effect

I've been trying to get an answer to a question I've had for a little while: when someone is making a new product that they expect to sell many of, they must line up contracts with suppliers, right? But if the product bombs, what happens with those contracts? I don't know. I can't even figure out how to research it, other than go take classes at a B-school, I suppose. In the meantime, however, I stumbled across The Bull-whip effect, when I did a google search I would never, ever, ever do if I knew how to find the answer I really wanted: what happens to supply chain when canceling product.

But don't bother with that search, just read this:

http://en.wikipedia.org/wiki/Bullwhip_effect

Customers buy crap. Retailers sell it, and then order more. The people who sell to the retailers (wholesalers or manufacturers) then figure out how much they have to buy to sell it to the retailers. Each stage tends to degrade the original signal (customer buying crap), so the solution is to somehow get the customer signal up the supply chain _other than_ through the order process (since the order process is subject to all kinds of wild variations that result from batching, taking advantage of price promotions and sales critters cramming the channel to meet a quota, to name a few).

So while I have made zero progress on the what-happens-to-unused-but-contractually-locked-down-supply-when-it-isn't-ever-delivered, I _have_ found yet another reason why hybrid enterprises like Amazon and Apple (which have very detailed customer data, but are themselves whole-saler like and/or manufacturer like) manage to get really big successes without alternating with nightmarish inventory overhang on their bombs. Yes, yes, I know. Short supply chain good. Duh moment. But I had not understood this particular aspect of it at all.

ETA:

While I'm talking about Apple and supply chain, this is interesting:

http://www.businessweek.com/news/2011-09-26/apple-cutting-ipad-supply-chain-orders-25-jpmorgan-says.html

That was from two days before the Amazon announcement. iPad resupply has been reduced by Apple, perhaps for the first time.

ETA:

Oh, look! Here's an answer.

http://www.informationweek.com/byte/news/galleries/personal-tech/tablets/231601801

BYTE did a teardown of the Touchpad and included a little summary of the history of the device.

"Then HP threw us for a loop. It and its countless retailers and online stores started selling the $400 plus tablet at fire sale prices starting at $99. And it sold like crazy. Digitimes reports HP sold out of its 800,000 to 1 million devices in the channel.

But wait, there's more--literally. The same sources at Digitimes, in Taiwan, say HP is planning to use up remaining components and build between 100,000 and 200,000 more TouchPads. For a dead product, the HP TouchPad is getting quite the install base. HP should rename it The Zombie."

Guess that answers the specific question of what HP and their suppliers did with the contractually obligated components. Or at least some of them.

ETAYA:

There's a bunch of stuff in here about a plant set up by Quanta and RIM to build the Playbook having done layoffs and maybe now winding down the plant entirely due to lack of actual demand.

http://www.zdnet.com/blog/btl/maybe-rim-should-kill-the-playbook/59420

The author was _very_ frustrated with the Playbook and, trying to retrieve some value from it, was just trying to:

"And my only goal here is to download a game or two and hand the PlayBook to my 4-year-old. And the PlayBook is supposed to be for business."

$600 device. For a 4-year-old to plays games on.

The next person who expresses confusion that these things are for _work_ and not for small children to play on, I'm going to point to the wikipedia article about the Commodore 64, with special emphasis on the $595 price tag. In 1983. CPI inflator sez ... over $1300 in today's dollars.

breathtaking foolishness and something very clever

I've been seeing a bunch of "analysts" claim that it costs $250 to make a kFire. Given my husband finding the EEtimes estimate (based on Playbook BOM and some subtraction for the reduction in feature set) of closer to $150, this was a bit of a headscratcher, but seemed to be attributable to a guy at Piper Jaffray (I have my own reasons for a big ole eyeroll whenever that firm is named).

http://www.dailytech.com/Amazon+to+Lose+50+per+Kindle+Fire+Sold+Apple+Gets+150+per+iPad+2+Sold/article22875.htm

"Now iSuppli's numbers are hardly infallible, but given that the LCD market hasn't move much price-wise in the last year, for tablet screens, it can be assumed that the Galaxy Tab's 7-inch display cost in the bill-of-materials gives a good estimate of what the LCD touch-screen unit on the Kindle Fire costs. Combining this with the extra cost of the iPad 2's largest amount of onboard NAND memory, we estimate that the difference is indeed in the neighborhood of $100."

iSuppli is out there with a more recent estimate for the cost to build kFire that wasn't used. _Year old numbers_ based on the _wrong comparator_ were used instead. [ETA: And judging by the comments thread, even that was misunderstood.]

It's almost as good as book huffers explaining how ebooks will Never Ever Replace pbooks.

The article has a theory about how Amazon can make money on it anyway.

Someone in the comment stream provides more detail on the iSuppli numbers, and how they undercut the silly person from Piper Jaffray.

And now for something clever!

http://news.cnet.com/8301-30686_3-20113631-266/kindle-fire-or...ipod-touch-ask-maggie/

The kFire may not be an iPad killer, but the ipod Touch may take some serious damage.

What iSuppli Actually Said ... and what it turned into

http://www.isuppli.com/Teardowns/News/Pages/Amazon-Sells-Kindle-Fire-at-Low-Profit-Margin-to-Promote-Online-Merchandize-Sales.aspx

It's not private or proprietary or anything. iSuppli served up their analysis both as a "virtual teardown" and as a business model.

$209.63 as "Hardware Cost to AMZ"

The rest of what they have to say is not that long and is very much worth reading. However, if you are looking for key sentences, here are two:

"When further costs outside of materials and manufacturing are added in—and the $199 price of the tablet is factored along with the expected sales of digital content per device—Amazon is likely to generate a marginal profit of $10 on each Kindle Fire sold."

iSuppli saying they'll make at least $10, even after you figure in more costs -- because there will be additional digital content sales. But that, actually is _not_ the point they are trying to make.

"However, the real benefit of the Kindle Fire to Amazon will not be in selling hardware or digital content. Rather, the Kindle Fire, and the content demand it stimulates, will serve to promote sales of the kinds of physical goods that comprise the majority of Amazon’s business."

And here is where the Prime-free-for-a-month bit becomes interesting. Let's say you were thinking about buying some sort of electronic device bigger than a phone, for playing games on, maybe watching video (TV episodes, trashy movies), maybe listening to music, probably to take with you when you are out and about. Maybe for a Significant Other, maybe for a child. The kFire will be on your shortlist once it exists. Let's say, further, you decide to pony up and get it right when it comes out. It arrives on your doorstep in the middle of November, right when you are about to start thinking about doing your holiday shopping for friends and family, some of whom are near and some of whom are not.

You just got _Prime_ when you were about to start your holiday shopping. I'm betting that you check Amazon for every damn present you buy, and free shipping could tilt you to making any given purchase at Amazon rather than ... anywhere else. (I know how this works. I _pay_ for Prime and I can see it in my behavior. And even if I couldn't, I have a little audio recording in my head of an elf-like man with an amazing laugh explaining how the goal is to increase the amount we get from each customer, because there are only so many customers out there.)

Here's what how CNN interpreted what iSuppli said:

http://www.cnn.com/2011/09/30/tech/gaming-gadgets/kindle-fire-price/

The author correctly understands that the foolish person at Piper Jaffray made an oopsie. And they get the diaper thing into the last sentence or two. But I don't think that author has figured out the implications of deliver-product-mid-November-with-one-month-free-Prime. I know _I_ didn't notice until quite recently.

Really quite diabolical. In a yummy sort of way.