What's Really Behind Amazon.com Inc's Latest Retailing Move?

By Tamara WalshFool.com

Unless you live under a rock, you've likely heard that Amazon plans to pull all sales of Apple and Google'sstreaming devices from its site by the end of the month. This is a drastic retailing decision that could have far-reaching effects on Amazon's position in the digital content and streaming wars.

Amazon defended its position on banning Apple TV and Google's Chromecast products, saying "it's important that the streaming media players we sell interact well with Prime Video in order to avoid customer confusion." But don't be fooled. This isn't about avoiding customer confusion.

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The real motive behind Amazon's retail snubSome analysts believe that Amazon hopes to boost sales of its own streaming device, the Amazon Fire TV stick, by removing Apple and Google's competing devices from its site.

The e-commerce giant launched its Fire TV device last year as a gateway to its growing library of digital content, which now includes thousands of movies and television shows as well as original content. Unlike Google's Chromecast, Fire TV is not a small HDMI dongle but rather a set-top box similar to Apple TV. At $99.99 a pop Amazon's Fire TV costs the most -- Apple TV starts at $69 and Google's Chromecast is available for just $35.

It is probably worth the extra cash for some customers because the Fire TV and Apple TV are both more feature rich than Chromecast. Both feature advanced gaming options as well as hardware components such as Ethernet, USB, and audio outputs that the Chromecast dongle currently lacks.

While the Fire TV might be directly impacted by Amazon's decision to halt all sales of Apple TV and Chromecast from its site, the move is truly aimed at bolstering the company's digital ecosystem. Amazon will still sell other streaming devices on its site that are possible competitors to its Fire device including a TV streamer from Western Digital as well as various smart TVs with streaming capabilities. The difference is that unlike Apple and Google, these options aren't backed by rich media ecosystems.

The real payoff for Amazon isn't in sales of its hardware, but rather in enticing consumers to use its streaming services and create Amazon Prime accounts. Before Amazon rolled out its Fire TV, the company's Kindle tablets were its only devices that directly connected consumers to Amazon's full ecosystem of digital media.

The ecosystem playThe world's largest online retailer has been aggressively investing in its video streaming service, known as Amazon Instant Video, since 2011. Just last month it picked up multiple Emmy awards for its original content, and earlier this year its original series Transparent alsotook home two Golden Globes. As a result, Amazon's digital ecosystem now rivals that of Apple's iTunes and Google Play in a big way.

Amazon's digital library now includes thousands of movies, and TV shows, millions of songs, and hundreds of games. The e-tailer has also rolled out Prime Video to great fanfare. In addition to unlimited free two-day shipping, Prime members also get unlimited access to tens of thousands of movies and TV shows included in Amazon's Prime Video.

For customers, the Prime Video ecosystem has an added benefit over Apple TV in that you don't have to pay to watch individual titles. If you are an Amazon Prime member you get unlimited access to its digital library for an annual cost of just $99. About 80% of Amazon's existing customers are not yet Prime members, which is why it makes sense for Amazon to put a greater emphasis on attracting consumers to its digital ecosystem. However, banning sales of Apple TV and Chromecast devices might not be the best direction.

One foolproof way that Amazon can differentiate its digital ecosystem from deep-pocketed rivals like Apple is to continue investing in original content. Apple TV, Chromecast, and Fire TV all offer content from third-party providers such as Netflix. However, if you want to watch Amazon's award-winning original series Transparent, well, you'll have to buy into the Amazon ecosystem.

Source: Amazon.

If Amazon's end game here is to get more consumers to sign up for its Amazon Prime membership and thus consume its digital media then original content could be the answer. Hooking consumers into its ecosystem also makes sense in terms of profitability for its retail business because Prime members typically spend more per visit on Amazon.com.

That said, Amazon should be more transparent about what is really going on here. If it truly wanted its streaming services offered on Apple TV, for example, the iDevice maker would likely offer it the same deal it offers other streaming services: Give Apple a 30% cut of the subscription revenue and you're in business.

Amazon's decision to cut Apple TV and Google Chromecast products from its online store won't likely have a material impact on Apple's or Google's sales of these devices. Apple still sells these devices in hundreds of Apple stores around the globe, whereas consumers can purchase Google's Chromecast from a variety retailers both brick-and-mortar and online. Ultimately, this should be a bigger loss for Amazon considering these are the best-selling streaming devices today and the all-important holiday shopping season is just around the corner.

Protecting its ecosystem investment is important. However, Amazon should tread carefully because offering its customers the best product selection should be equally important -- after all, it is the self-proclaimed "Everything Store."

The article What's Really Behind Amazon.com Inc's Latest Retailing Move? originally appeared on Fool.com.

Tamara Rutter owns shares of Amazon.com and Apple. The Motley Fool owns shares of and recommends Amazon.com and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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