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Brier Dudley's blog

Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

November 25, 2014 at 1:53 PM

Gadget deals like Fire TV Stick point to subscription services

It’s beginning to look a lot like Amazon’s Christmas, everywhere you go.

Of course there are the billions of dollars that shoppers will funnel through Amazon.com. In Seattle, more than a few construction workers and property developers are in a giving mood, thanks to Uncle Jeff’s building spree.

Then there’s the huge variety of gadgets the company is now making and selling itself, at prices ranging from 99 cents for the bargain-bin Fire Phone to $379 for an 8.9-inch Fire HDX tablet.

Lots of people will be giving gadgets this year — 63 percent of Americans are planning to, according to the Consumer Electronics Association — so there’s a good chance one from Amazon will end up in your house this holiday.

Aside from the underwhelming phone, the array of new Amazon’s devices are all pretty nice.

I was pleasantly surprised by a $39 Fire TV Stick that I tried out last week.

It’s a thumb-size device that fits into an HDMI port on a TV set (and a power outlet) and provides access to online video services, some Android apps and photos you’ve stored on Amazon’s network.

Fire TV Stick. Amazon.com image.

Fire TV Stick. Amazon.com image.

This is a me-too device, blatantly emulating the $35 Chromecast TV device that Google introduced in summer 2013 and Roku’s $50 Streaming Stick.

Amazon’s version has a newer processor and works smoothly, using the polished interface it built for the Fire TV box it launched in April and sells for $99.

The box has a nicer remote control that takes voice commands. But you’ll be able to control the Stick with your voice using a free app Amazon is releasing on Android and iOS devices.

firesticky

For $35 it’s an easy stocking stuffer for someone who doesn’t yet have a TV connected to online services. It’s also an intriguing option for people who don’t want to pay for a cable box on a secondary TV set.

But keep in mind that these things are cheap for a reason. You’re not just giving someone a gadget, you’re leading them toward online services that may ultimately cost hundreds of dollars.

Owners of Fire media devices are likely to end up subscribing to Amazon’s $99 per year Prime bundle, if only to get the “free” movies, TV shows and photo storage that make these devices sing and are highlighted in their menus.

Prime subscribers are then likely to buy more stuff at Amazon.com because it’s convenient — they’re already plugged into the system — and shipping is generally free to subscribers.

Subscribers get so comfortable with Amazon and trust the value it offers, they may do less comparison shopping, according to a report last week by stock analysts at Nomura.

While people may sign up for Prime’s collection of “free” streaming video, the service drives more spending at Amazon’s online video store, where there’s a broader selection, the report said.

Giving someone a Fire Tablet or Fire TV device is not the same as presenting them with a cellphone that ropes them into a two-year, $1,500 wireless plan.

But either way, there are follow-on costs to these gifts.

I think people now realize what sort of commitment a cellphone entails.

I’m not sure, though, that we’ve reached the same level of understanding with other gadgets — especially things like tablets, PCs and video machines that haven’t traditionally required subscription services to work at the optimum level.

Amazon isn’t alone here. All the big cloud-computing companies are dangling gadgets to hook consumers and reel them into services that cost around $100 per year.

This is the direction consumer computing is heading — toward a subscription model where you pay a monthly or annual fee, similar to cable TV, broadband and wireless phone services.

In this light, you might see gadget bargains as bait in a trap. Or — if you’re more accepting of this evolution — they’re a chance to get nice hardware at a good price during an extended promotional period.

Consider the holiday special that Google announced last week. Buyers of Chromebook PCs will get 1 terabyte of online storage for the first two years. That’s “almost $240 in value — absolutely free,” the announcement said.

Chromebooks are already priced low — $199 and up — because they’re inextricably linked to Google’s ad-serving sites.

But ads won’t provide a free ride on the Google Train forever.

After the two-year trial period is over, Google will charge Chromebook users $10 per month to continue storing 1 terabyte of data.

One way that Microsoft is getting its tithe is by nudging people away from packaged versions of Office to Office 365 subscriptions that cost $99 per year — year in and year out. The bundle now includes a terabyte of “free” storage.

To compete with Chromebooks, Microsoft and HP just started selling $200 “Stream” laptops. They have minimal onboard storage because you’re expected to store files on Microsoft’s network, where you get Office 365 and a terabyte of space during the first year. Then it will cost you $100 per year.

A terabyte may seem like a lot, but think about all the digital pictures and video that people are capturing with ever-higher-resolution cameras and phones. Research firm Gartner predicts the average household will be storing 3.3 terabytes of digital stuff in 2016.

Maybe that’s why Amazon upped the ante a few weeks ago by offering unlimited photo storage to Prime customers, as long as they keep subscribing.

Eventually the various devices and offers will appeal to enough people that Amazon will start making serious profits and reward investors who keep waiting for the company’s big investments in cloud services, distribution centers and new hardware to pay off.

Investors are getting impatient. But the Nomura analysts believe a breakout is coming soon and predict the stock will gain 24 percent over the next year. They expect e-commerce in general will double its share of overall retail sales in the next few years, and Amazon will outpace the sector, growing sales from $68 billion last year to $157 billion in 2018.

Perhaps the turning point will be when all those Fire tablets and TV devices are hooked up Dec. 25, bringing millions of future Prime subscribers on board.

 

Comments | Topics: Amazon.com, Digital media, fire tv stick

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