Should Apple Let Amazon Sell the iPad?
Apple has always had a love-hate relationship with Amazon as a distributor. The online retailer typically pushes the boundaries of its reseller relationship with Apple by offering discounts on Apple products that are below the Minimum Advertised Price, a reseller agreement that enables a manufacturer to establish pricing guidelines that can protect an OEM's brand and their competitive position.
Sometimes when Amazon wishes to skirt the supplier's agreement, list prices are too low to publish on their product pages. But Apple continues to supply Amazon as an online channel partner, despite repeated threats to de-list them as an Apple authorized reseller for ignoring the intent of the agreement. In the face of growing statistical evidence that Apple's direct to consumer channel growth, driven by their retail store expansion, has had a direct effect on increasing market share globally, perhaps now’s the time for Apple to revisit their Amazon reseller strategy.
Back in 2005, I was the senior director for the Apple Online Stores in the Americas, and Amazon was a thorn in my side. As the e-commerce channel manager for Apple, I was responsible for revenue attainment from apple.com sales. But I ran a company store, and that meant our products were listed at the manufacturer’s suggested retail price. Back then, there was no big “Buy Now” button on the Mac product pages to land a shopper directly in my store, but rather marketing pages merchandised all the ways you could buy an Apple product, hoping that the "the rising tide lifts all boats" approach would grow market share.
Apple welcomed Amazon, even though it had been building its brand as a discount electronics retailer and selling way below list price.
In those days Mac was running on PowerPC chips, applications for the Apple OS were thin, and broadly distributing the Windows version of iTunes was considered to be the best strategy Apple could execute to get customers to buy Macs.
Broad adoption was the goal. So it was easy to understand why Apple would be conflicted about the velocity of sales Amazon represented, with its super-low pricing strategy helping to make Apple’s products more accessible during this period of transition to Intel.
But now it’s a different market that has welcomed the launch of the iPad. Macs use Intel processors and can run Windows through Apple’s own utility, Boot Camp. The iPhone has displaced the iPod as Apple’s most talked-about innovation. Apple has successfully managed to avoid the “buy one, get one” free offers for the iPhone that other device OEMs have faced in wireless retailing, a market that has commoditized hardware design with promotions in order to drive service contract sign-ups.
The Apple Online Store is now the direct destination for the “Buy Now” buttons prominently promoted in the product page headers for Apple.com. And the one channel partner Apple supports for the iPad launch, Best Buy, has only received shipments at those stores that have an Apple “store within a store.”
Despite the fact that the device does not have super-distribution at launch, the iPad is projected to sell more than five million units in 2010. Although the Easter Sunday holiday closed some retail stores and also distracted shoppers, Apple still reported selling 300,000 units the first day. Estimates of iPad sales for the entire weekend are indeed twice that volume.
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