• by Mark Walsh  @markfwal, July 14, 2011

After months of speculation and hints, it looks as if Amazon is finally getting ready to roll out its own tablet in the third quarter. The company will release an Android-powered device with a 9-inch display but no camera by October, according to a Wall Street Journal report Wednesday, citing unnamed sources familiar with the matter. People would be able to use the tablet to watch videos, listen to music or read books they buy from Amazon.

Amazon CEO Jeff Bezos strongly suggested the online retail giant would come out with an iPad rival when he told a Consumer Reports interviewer in May to "stay tuned" in response to a question about the possibility of the company launching a multipurpose tablet device. With the Kindle as its best-selling device, Bezos has long touted the virtues of a single-purpose device for reading.

But with Amazon entering the tablet fray, that naturally raises the question of whether it will cannibalize Kindle sales. In the Consumer Reports interview, Bezos indicated the introduction of its own tablet wouldn't spell the Kindle's doom. He said the company will always want to have a dedicated reading device.

Some recent findings suggest Bezos' hopes aren't misplaced. A Pew study last month found the number of U.S. adults owning an e-reader doubled from 6% to 12% between November 2010 and May 2011, while tablet penetration during the same period only increased from 5% to 8%. And even with the release of the iPad 2 and a flood of new competitors since January, tablet ownership has only increased 1 percentage point during that time.

Separately, media and publishing forecast firm Simba Information's "Trade E-Book Publishing 2011," in May found 40% of iPad owners haven't used the device to read a single e-book. Tablet owners also make up the majority of e-book users.

On top of that, differences in how and where people use e-readers and tablets have emerged. Tablet owners, for instance, are much more likely to use their devices in the living room while watching TV, while e-readers rule the bedroom nightstand. Because they can be held more easily in one hand, e-readers make it easier to read in bed or elsewhere.

And while Amazon hasn't revealed actual Kindle unit sales, they appear to be going strong by all accounts despite the tablet onslaught and the nearly 20 million iPads sold to date. Still, there's no doubt Amazon has to play catch-up in the tablet race. And it's nowhere near challenging Apple in the apps department.

Nevertheless, Amazon brings considerable advantages, including its huge customer base, an online music store and music player, TV and movie rentals, e-books, and a cloud service to store all that digital content. And don't forget its Android app store. One other move that could help set an Amazon tablet apart from the pack is adapting the Kindle ad model.

The Kindle with Special Offers, both the Wi-Fi and 3G versions, have proven popular with consumers since launching this spring. They're now the top-selling models, according to Amazon's own list of electronics best-sellers. Users get a lower-priced version of the Kindle in return for accepting advertising and deals delivered via a screensaver and a band at the bottom of the device's home page.

So if $500 is the going rate for tablets today, why not introduce a tablet with Special Offers that sells for $450 or $400? That would get consumers' attention -- and give Amazon another way to break through the tablet clutter and challenge the iPad's dominance.