Once upon a time there was an online store that sold one particular type of media really well. So well, in fact, that it expanded to other media. It engendered customer loyalty by tracking customer purchases and, using sophisticated algorithms, recommending related products for purchase.
Question: are you thinking 'Amazon' or 'Apple'?
Up to this point in the story it could be either, right? Amazon with books, or Apple with music. Arguably Amazon is more obvious because that's all it had, whereas Apple had an additional loyalty weapon in its arsenal: the ipod. And what a weapon! With an ipod you're umbilically locked into iTunes. Imagine if your entire CD collection could only play on Sony CD players. You'd feel restricted, right? You'd mock the absurdity of it: how dare Sony be so presumptuous! Yet millions of us bought, or were bought ipods. The word 'ipod' has, like 'walkman' before it, made the transition from proper to common noun. And we happily bought our music, then our videos from iTunes.
Then Apple produced the iPhone. The device itself was not particularly revolutionary: multi-touch was a beautiful gimmick, but functionally similar phones had been around for some time. Except this was an ipod too. So rather than carrying around an ipod and a phone, you could just carry a phone. Sony offered walkman phones, but they didn't have iTunes, where many peoples' media collections now resided. So the iPhone took off, enabling Apple to beef the device up with GPS and 3G compatibility... and tack an app store onto the side of iTunes.
Meanwhile Amazon finally figured out that tethering customers to your own hardware device was a good loyalty move, so they produced the Kindle for reading their books. Except books are an ancient and familiar technology, with little need of an electronic overhaul; and if you did prefer electronic versions, why not have the reader software on your own preferred device, rather than Amazon's?
Now, Apple have produced the ipad - a bigger ipod - and tacked a bookstore onto iTunes. Again, the device is not particularly revolutionary, and functionally similar devices have been around for some time. Except this is an ipod too, with all your music, video, apps, and now books from iTunes on it.
Imagine if all your music, videos, games and now books are only usable on Sony devices. Even if Samsung TVs are better, or JVC music players offer richer sound - you can only use Sony. While books are written about the marvelous Apple gadgets, little is said of the true Apple genius, its truly imperial mastery of media distribution: the iTunes store.
What could possibly compete with such a physical bond with loyal customers, that fully bespoke (not even USB!) ipod/ipad/iphone cable? As I mention repeatedly above, despite what the frothing media pundits say, the device is not the magic. HTC do better phones, and there are a number of tablets hitting the market. Building competing devices is not the issue: it's how you intercept that iTunes bond.
The answer is straightforward in principle: provide a better store. But how could you possibly do all the deals with content providers, build the catalog and transaction and loyalty mechanisms? You don't... if you're Amazon. Amazon's singular failing is in not providing a lean, aggregated interface to all the things that a smartphone/tablet user needs. It has an MP3 store, and it offers video on demand. It even has a bookstore. All it has to do is serve these up in a seamless manner directly to smartphones and tablets. No iTunes client, just device to service, with the significant selling point that it's not tying you to specific hardware.
So, Amazon: drop Kindle and get Androided. Google: go talk to Amazon about doing a proper App store. And both of you leave the hardware to the experts.