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

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.