Opinion: why Apple forced Target to boot Kindle over “conflict of interest”

By , May 2, 2012

As you probably know by now, this morning’s big news has Target dropping Kindle hardware from their retail stores. The story has been officially confirmed by a spokesperson for the nation’s second-largest discount retailer, after Walmart. The resulting finger-pointing, largely centered around Apple and its iPad, is based on an unnamed source mentioning a “conflict of interest” as Apple apparently put the arm on Target…

The Verge broke the news yesterday and was able to confirm it with Target. The retailer wrote in a statement to the publication:

Target continually evaluates its product assortment to deliver the best quality and prices for our guests. Target is phasing out Kindles and Amazon- and Kindle-branded products in the spring of 2012. We will continue to offer our guests a full assortment of e-readers and supporting accessories including the Nook.

As for conflict of interest, Dan Mitchell writing for Forbes makes a valid point:

If that’s the case, isn’t it also a “conflict” for Target to continue carrying the Nook? And for that matter, isn’t it a conflict for it to carry Pepsi as well as Coke?

Nonetheless, the Apple angle does have its merits.

For starters, while Android tablets have failed to make a dent in the iPad’s dominant market share, Amazon’s $199 Kindle Fire tablet has been selling well, moving four million units in the first quarter of this year.

The figure pales in comparison to the more than 11 million iPads Apple sold, but it should be noted that the Fire, which runs a forked version of Android, now accounts for more than half of all Android tablet market.

We also know that Apple is partnering with the Minneapolis, Minnesota-headquartered retailer on so-called boutique stores which will no doubt improve visibility and help increase sales of Apple’s gadgets at Target’s brick-and-mortar outlets.

These mini Apple stores will roll out in 25 of Target’s retail locations and will be permanent.

Another possible reason: Apple products carry industry-leading margins so retailers also get to enjoy nice mark ups on them.

Contrast this to the money-losing Kindle Fire (Amazon makes up for the losses with content revenues) which retails for $199. Retailers clearly don’t get to profit nearly as much from the Fire as they do by placing Apple’s pricier and more profitable tablet on store shelves.

Though analysts say the Fire is but a training wheels for iPad, the device’s biggest feature is admittedly its price point. Conveniently priced at the psychologically important $199 barrier, Amazon’s tablet didn’t just set the tongues wagging, it helped bring in a whole new segment of price-conscious buyers, most of whom probably deem iPad too pricey.

So, I guess you could say that the $199 Amazon tablet did put pressure on Apple to deliver an inexpensive iPad.

Looking at the big picture, the Apple-Amazon battle is about content, not hardware.

Think e-books.

Apple and Amazon are now fierce rivals in electronic books. Their vigorous competition has earned the iPad maker an anti-trust lawsuit as the U.S. Department of Justice last month alleged that Apple and book publishers convoluted to fix prices.

DoJ argues Apple and publishers conspired to adopt so-called agency model (publishers choose prices, Apple keeps 30 percent of proceeds) at the expense of Amazon-backed wholesale model (Amazon sets low e-book prices that hurt publishers’ bottom line).

That said, one could argue that Apple forcing Target to make a choice between the iPad and the Fire is yet another example of anti-competitive practices on Apple’s part.

If this true and Apple in fact told Target ‘hey, it’s our way or the highway’, the iPad maker inadvertently indicated that the Fire’s strong uptake and its promise of inexpensive tablet computing have had Apple really, really concerned.

As always, I could be right and I could be as well terribly wrong with these assumptions.

It’s just an opinion piece and I’d be happy to learn about your views down in the comments.

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  • Ignacio Irigoyen

    For me it does not make sense that Apple ask Target this, I mean there are too many questions: Why just Kindle? Why only Target? Why even bother?

    • http://twitter.com/BUSfromRUS Alexander Buskin

      Why just kindle? Maybe release of mini-iPad or whatever.

      • Ignacio Irigoyen

        Why only Kindle then, I mean it is not the only 7in tablet

  • http://twitter.com/oneBurge Burge

    If this is the case … Someone is going to sue someone else…

  • Anonymous

    You lost me at “unnamed source”… And the Apple angle has zero merit without any tangible proof. An inkling doesn’t amount to squat.

  • Anonymous

    You lost me at “unnamed source”… And the Apple angle has zero merit without any tangible proof. An inkling doesn’t amount to squat.

  • Anonymous

    Who cares about the article, I hope iDB continues article pictures of this caliber…

    • http://www.facebook.com/derfaust.mobile Der Faust

      now thats funny!
      :)

  • http://www.unitedworx.com Paris Paraskeva

    My guess is that this happened

    Apple: we want to build apple mini stores in your 2000 stores in the USA, we will start with 25 as a pilot!

    Target: that’s sounds super delicious, means more people visiting our stores! Why did we not agree to this sooner!

    Apple: yes that’s correct, but there is one more thing! Target selling kindle tablets as won’t be a good thing! What can you do about it?

    Target: Consider kindles out or target! They don’t have the iPad margins anyway!

    • Anonymous

      Apple product margins are ridiculously low. That’s why you don’t see Apple products go on sale very often (when they do they sell them at a loss or, more recently, give out giftcards instead) and why almost everyone sells them at the same price.

      I doubt most of this rumor anyway. Target likes to control the shopping experience as much as Apple does. They don’t let any company have prominent space that isn’t strictly controlled through their own marketing department. Every endcap they have has to be approved by Target Corp., signing made by them, and they will tear down anything a vendor puts up that isn’t approved.

      I worked there for 12 years (5 in management). Trust me, they’re easily as anal as Apple.

      However, there is a point about it bringing in more potential customers. If Apple worked closely with Target and paid them a freaking ton they may get some floor space. I gaurentee it wouldn’t be more than one aisle though (probably one side … they almost have that anyway).

      People forget that the margins on food and clothing is much, much higher (talking 100%-500%) and is a necessity and that Target sells a lot of other necessities (toiletries, linens, etc) that they still need floor space for. I could see them giving up floor space in books though.

      Anyway, as a former long time Target employee, those are my thoughts.

      • http://www.iDownloadBlog.com Sebastien

        You’re wrong. Apple products margins are incredibly high. In fact, they’re higher than any tech company. That’s why they make so much money every quarter. When they sell an iPhone for $700 to AT&T, they actually make $350 off of it.

      • Anonymous

        Apple makes a huge profit NOT the retailers. The carriers would be an exception with subsidized Apple devices however.

  • http://www.unitedworx.com Paris Paraskeva

    Btw I don’t consider this a bad practice! I consider this good business.

    If you dare think apple at the scale it is today will be the good samaritan you are wrong! As apple grows stronger they will able to close deals on thier benefit and thier customers and not the benefit of others.

  • http://gcerullo.pip.verisignlabs.com/ GC

    One other possible “conflict” Amazon and the Kindle has with Target has nothing to do with Apple and the iPad.

    Amazon is a direct competitor to Target offering many of the same type of goods for sale online, and in many cases tax-free, that Target sells. Target carrying and promoting Amazon and it’s products is like handing out Walmart flyers at the door as customers enter the Target store.

  • http://www.facebook.com/profile.php?id=1595420643 Simche Apple Konstantinovic

    Does it really matter ? I kinda did not care much since I live in Europe, and the only thing that is competitive here is the ultimate price of the iPad and other so called “tablets”… The strange part is that here, an for example, Samsung tab cost about 50-100$ cheaper than an iPad, so people save the extra and often buys the more expensive one cause they know it’s quality and not crap! And in US u have this stores and probably some kind of commercial for your iPads… We in Europe don’t have that and still we buy apple products!

  • http://twitter.com/causticmango Samuel Ford

    What? The conflict is between Amazon & Target – Apple has nothing to do with it. Amazon is in direct competition with Target as a retailer. 

    Not everything is about Apple. 

  • http://profile.yahoo.com/LWBXJFQ4V6QCHB6ZQDGUKP4OLI Jay

    There is basically*NO* profit for the dealer in Apple product.

  • http://twitter.com/kbconsulting Ken Berger

    Where does the Apple is behind the Target dropping Kindle come from? Is not not more likely that Target considers Amazon a competitor?
    Why would any brick and mortar operation support Amazon? They are impacting retail more than the mobil industry!

  • Anonymous

    I know what you mean by the “mark-ups” on Apple products because when I sold computers, the biggest commission was on Apple computers; according to these comments though, that has changed. I love the iPad2 my family has, but I would love the new Retina display even more. I use the Dish Remote Access App on my wife’s iPad2 at home a lot because it is handy when I need to make changes to my account, make timers on the DVR or watch an on demand show when I’m working in the garage. It would be convenient to buy Apple at Target since it is close to where I work at Dish too.