"Companies just aren't making much of a profit off of these tablets," says Rhoda Alexander, director of tablet and monitor research for market research firm IHS iSuppli.
Alexander notes the success of Amazon's $200 Kindle Fire tablet, which -- while relatively limited in both performance and capability -- has sold exceedingly well. For Amazon, Alexander says, it isn't about making money off the hardware itself; it's about making it easy for customers to spend money with the company every day.
"Where they're making the profit is in the long term of bringing people into the Amazon universe," Alexander says.
Amazon's strategy is clearly winning people over: The company accounted for more than half of all global tablet sales in the fourth quarter of 2011, according to IHS iSuppli's estimates, shipping 3.9 million Kindle Fires and shooting past Samsung to become the world's second-largest tablet shipper for that quarter.
In the bigger picture, with the help of Amazon's product -- which runs a highly customized, almost unrecognizable version of the Android 2.3 OS -- Android's share of the tablet market is slowly but surely starting to rise. Research by market analysis group IDC (which is owned by International Data Group, the publisher of Computerworld) showed that Android owned 44.6 percent of worldwide tablet sales in the fourth quarter of 2011 -- a 38 percent jump from its position in the previous term.
Much of that growth came at the cost of Apple. The iPad maker, while still experiencing strong growth, dropped 11 percent in total market share in 2011 from quarter to quarter, according to IDC, coming in with 54.7 percent of tablet sales for the final three months of 2011.
The Android tablet challenge
The million-dollar question now is whether Amazon's model of success can extend to the rest of the Android tablet market, which thus far has struggled to take off. While many analysts predict continued growth for Android overall -- Gartner, for example, forecasts Android tablet sales increasing eight-fold over the next five years -- some industry experts question whether playing the price game will be enough.
"Lowering the price on Android tablets will help, but that in and of itself won't sell the products," contends Sarah Rotman Epps, a senior analyst with Forrester Research.
Epps argues that products like tablets are as much about their interface as their hardware: You buy an Amazon tablet because it provides simple access to Amazon's content, just like you buy an iPad because it makes it easy to get and use stuff from Apple's iTunes store. The hardware matters, she says, but it isn't everything.
"Amazon has been successful because it does a great job delivering on the customer relationship -- the transaction," Epps explains. "A cheaper device from Google doesn't fix its shortcomings in that area."