September 28, 2011, 11:01 AM

Amazon laps the field, while turns in for a pit stop

Amazon’s new tablet computer makes it a stronger force in selling digital entertainment.

The future of stores is very much in doubt as the Internet becomes increasingly pervasive. When consumers carry the Internet in the form of web-enabled smartphones,  the ease of comparing prices and ordering from cheaper online retailers makes it difficult for stores to charge the prices they need to pay for physical operating costs.

That said, Wal-Mart Stores Inc. figures to be the last store standing, because of its massive size and superb supply chain and technology, which allows the world’s largest retailer to keep prices low. That will allow it to at least undercut its store-based rivals. Meanwhile, continues to disappoint, and Wal-Mart has been shaking up its management, most recently with this week’s announced retirement of Eduardo Castro-Wright,  a senior e-commerce leader.

Still, it’s way too early to count out Wal-Mart. I’m keeping an eye on their recent creation of @WalmartLabs to spur technology development. It’s built around a company Wal-Mart acquired this year, Kosmix, whose technology analyzes data from social networks to target ads and promotions. That’s the kind of company that could help Wal-Mart leverage all its strengths in the online world.

Meanwhile, Amazon just goes from strength to strength. Its launch today of a  tablet computer is just another example of the world’s leading online retailer using its financial strength and technology expertise to get in early on what Amazon expects to be a big growth market—delivery of music, books, movies, TV shows and every other kind of content that can be converted to bits and bytes over the Internet.

Amazon essentially created the e-book market by developing its Kindle e-book reader and an easy way to buy electronic books to read on the Kindle. Amazon essentially followed the Apple iPod model—develop an elegant device and then tie it to an easy way to buy the content that the consumer can consume on the device. Sony was ahead with its own e-book reader, but failed to offer consumers enough books to make it interesting. Amazon did, and the book publishing world is reeling from the results.

Now Amazon is quickly following Apple again, this time into the tablet computer world created by Apple’s iPad. While the Kindle is fine for reading books, consumers will want a more all-purpose device to watch football games and sitcoms on, and Amazon’s Fire tablet computer will compete head to head with the iPad and other tablets for consumers’ attention.

It’s worth thinking about why Amazon is becoming a hardware manufacturer. After all, it didn’t need to build PCs to convince consumers to buy from its e-commerce site. But digital content is different. The key is to have a device that easily links to an online store where content is plentiful and easy to buy.

I, for example, own an iPad and often read books on it. I buy them from the Apple iBooks store because that Apple app is right on my home screen and Apple has all my payment information. I just type in my Apple password and I’ve got the book. I could download the Kindle app for iPad that would allow me to buy Kindle books that no doubt would look just fine on the iPad. But going the Apple route is so easy that I haven’t bothered.

I suspect I’m not the only lazy consumer. Amazon is catering to our natural desire to do what’s easy by creating its own tablet that will provide ready access to Amazon content. That’s the model that worked for the iPod and Kindle, and it will be way to go as the tablet wars heat up.

One last note: Amazon is also throwing in a one-month trial subscription to the Amazon Prime free shipping program for buyers of its new Kindle Fire. Since the Fire is only $199, a fraction of the $499 price of Apple current tablet, the iPad 2, that means Amazon is essentially giving away a month's worth of access to Prime, which offers free two-day shipping on all Amazon purchases. Amazon also threw in its Instant Viewing video-streaming service free for Prime members, and is quietly letting Prime members know that your friends and family can use your Prime account at no extra charge.

In short, Amazon is using its huge advantage over other web retailers in fulfillment—Amazon has more than 60 fulfillment centers worldwide and is opening new ones at a rate of nearly one a month—to cement the loyalty of Amazon customers. @WalmartLabs will have to come up with some pretty hot stuff to even get back into the rearview mirror of Amazon.

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