Why It Makes Sense for Amazon to Make a Tablet - TheStreet

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (

Trefis

) -- Speculation is rife that

Amazon

(AMZN) - Get Report

could soon launch its own tablet to rival

Google

's

(GOOG) - Get Report

Android-based tablets and

Apple

's

(AAPL) - Get Report

iPad. Such a device will provide Amazon with a single platform to package its spate of recent product and service launches, such as the Android app store, Cloud Drive, Cloud Player, the Amazon music store, a new streaming movie and TV show service, Kindle, etc.

We believe that this would be a good move for Amazon, and we believe the tablet will compete with Apple and

Samsung

, while its online offerings already compete with

Microsoft

(MSFT) - Get Report

, Apple, Google and others.

We currently have a price estimate of $199 for Amazon's stock, which is roughly in line with the market price.

Amazon Could Leverage Lead in e-Books Market

Amazon is the market leader in the e-Books market and claims its market share to be around 70% to 80%, according to an interview conducted by

CNET

with an Amazon Vice President. Amazon's edge lies in its inventory of e-Books and it has more than 710,000 e-Books while Apple has far fewer e-Books in its iBookStore. Amazon has an app for the iPad to download e-Books from Amazon and read it on the iPad. Although it helps the company sell more e-Books, it also helps Apple. Hence, if Amazon introduces a tablet, it could leverage its lead in e-Books to sell more tablets and compete more directly with the iPad.

The company currently keeps the pricing of its e-Reader Kindle relatively low in order to avoid competing head on with the iPad. Users prefer the iPad because it not only acts as an e-reader, but it can also play videos, games and download apps. Hence, we expect iPad sales to exceed that of Kindle by a wide margin, in spite of the price difference.

Amazon's Touch-Screen Technology

Amazon acquired Touchco, a touch-screen technology start-up early in 2010 to boost its touch-screen functionality for its e-reader Kindle. However, Amazon could leverage this technology for building tablets as well, as touch-screen functionality is one of the most important functionality for a tablet.

An Amazon-branded tablet would help popularize its other product and services, such as its app store, cloud drive service and cloud player app by having them installed on its tablet, which would help drive adoption. With a hit tablet, Amazon could better compete with Apple and Google in providing a suite of mobile devices, services and multimedia functionality.

See the

complete $199 Trefis Price estimate for Amazon.

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