The Amazon Appstore for Android launched last week. Although the online retail giant's new software storefront still has some rough edges, it could eventually have significant ramifications for the entire Android ecosystem. If Amazon's Appstore proves to be a viable alternative to Google's own Android Market, it could weaken the search giant's control over the Android platform and shift the balance of power in a direction that favors hardware makers—opening the door for forks and deeper differentiation.

This could prove to be especially significant right now, because Google's decision to withhold the Android 3.0 source code for the foreseeable future has created a need for Android hardware vendors to pursue more autonomy and insulate themselves from Google's increasingly dictatorial control over the operating system.

Although most of the smartphone version of the Android operating system is distributed under an open source license, there are several proprietary pieces of the core application stack that are controlled solely by Google. This group of closed-source software components includes the Android Market and various Google-branded applications like Gmail that integrate with the company's Web services.

Google's exclusive control of the Android Market gives the company a tremendous amount of leverage over how Android is used. Hardware makers that want to ship the Android Market on a device have to commercially license it from Google and meet certain requirements that are stipulated as part of the licensing agreement.

For example, devices can only ship with the Android Market if they fulfill the criteria defined in the Android Compatibility Specification. Google's tactic of tying Android Market distribution to conformance with the Compatibility Specification limits the extent to which hardware makers can customize the operating system. This obviously is detrimental for hardware vendors that want to do deep differentiation, but it has been beneficial as a means of protecting the Android platform from fragmentation by mandating a baseline level of interoperability.

If a hardware vendor wants to fork Android and deviate significantly from the standard user experience, it loses the ability to ship the Android Market—and consequently loses access to the growing body of third-party Android applications that are only available through that distribution channel. In order to completely cut Google out of the Android equation, a hardware vendor would have to develop its own application delivery system and find a way to attract developers to its Android variant.

So far, the most prominent example of an Android fork with an independent application ecosystem is OPhone, an Android derivative that is developed by Chinese mobile carriers. As we explained last year when we first discussed OPhone, the platform has its very own application store and entirely eschews any kind of Google tie-in. There has been a lot of speculation about whether any US companies would take similar steps in order to liberate Android from Google.

Amazon's new Appstore is the first truly credible alternative to the Android Market. If Amazon is willing to license it to hardware makers, it could very well create an opportunity for some major players in the Android ecosystem to part ways with Google and do their own thing. That would have a huge impact on how the platform evolves. We would likely see a lot more diversity between devices and a whole new scope of platform customizations.

Hardware vendors that are frustrated with the restrictions on Honeycomb availability or Google's bullying can simply fork Android 2.3 and craft their own entirely custom user experience. They can afford to disregard all of Google's requirements because they would still have an alternate application store to ship instead of Google's Android Market.

It's entirely possible that some of the vendors will be able to deliver a better user experience than Honeycomb itself with custom adaptations of Android 2.0 once they are no longer hamstrung by Google's stipulations.

Of course, hardware vendors would still have to make sure that they don't break APIs or diverge in ways that would undermine application compatibility. The software in Amazon's store is still basically the same software that is distributed through the Android Market today. In that sense, it's not quite as conducive to divergence as creating new application ecosystems from scratch.

What's the endgame for Amazon?

It seems almost inevitable that Amazon will eventually launch its own Android tablet. In a recent editorial, Business Insider succinctly articulated some of the reasons why the tablet business would be a good fit for Amazon.

As they point out, Amazon already has practically all of the pieces of the puzzle—the company has a lot of vision, a strong brand, a huge library of content that it can sell to tablet owners, an existing foothold in the consumer electronics market, lots of visibility, and a retail channel through which it can directly sell a tablet product to consumers. Some of Amazon's latest offerings—such as its new Cloud Drive and Cloud Player services—even put the company a step ahead of Google and Apple in some respects.

There is also another critically important piece that is falling into place: demand. I recently wrote a tutorial describing how to hack the Nook Color e-book reader so that it can be used as a tablet. I wrote that piece because I thought it would be a novel (pun intended) way to introduce the Ars readership to the modding scene, but it ended up catching the interest of a much broader audience than I had anticipated.

I was frankly astonished by the enormous amount of mainstream interest that emerged in response to that Nook Color article. It was even discussed prominently in a Wall Street Journal column. The inescapable takeaway point that I got out of the experience is that there are a ton of people out there who are willing to go to extreme lengths to get a decent low-cost tablet.

The extraordinary thing about this pent-up demand for an entry-level touchscreen device is that it was largely created by the hype surrounding the iPad. The consumers who are interested in hacking the Nook Color didn't know they wanted a tablet until iPad-mania emerged. But these people don't necessarily want or can't afford Apple's shiny gizmo; they just want the next best thing at a more affordable price—a decent color touchscreen device for consuming media, reading articles, playing Angry Birds, and checking their e-mail.

Let it be known: if you build it, they will come. While the mainstream hardware vendors are tripping over each other chasing Apple's taillights in a futile effort to deliver a competitive high-end tablet, they are missing a huge opportunity to meet demand for an entry-level tablet—a product space where their chances of success would be far better because they wouldn't have to compete with Apple.

It seems fairly obvious that consumers aren't going to want to pay iPad-like prices for a mediocre Android-based iPad imitation—and lets face it, that's exactly what all the high-end Honeycomb tablets are at this point. A device that costs half as much as the iPad, however, would look appealing to consumers if it were capable of fulfilling essential mobile computing requirements and meeting a higher quality standard than Walgreen's-sold rubbish.

The realm of the $250 price point tablet is just waiting to be conquered— its only occupant right now is an offering from Barnes and Noble that doesn't really deliver unless you hack it. Barnes and Noble is ramping up to turn the Nook Color into a tablet, but I think Amazon has the will and the expertise to build a fantastic product in that space. Amazon could totally own it in much the same way that Apple owns the high-end tablet market.

The Amazon tablet speculation has attracted criticism from some naysayers who don't think that Amazon would settle for building a device with tablet-like battery life and crappy outdoor screen visibility. You can't call it a Kindle if it's only going to last for eight hours, right? I think the solution to that problem is simple: use a dual-mode display like the kind engineered by Pixel Qi.

The hypothetical Amazon tablet tablet could have a "Kindle" mode where the display gives you high-resolution sunlight-readable grayscale rendering. You could easily use it as either a tablet or an e-book reader. It's still not going to deliver Kindle-length battery life, but it would be a pretty good compromise. I would want to buy a $250 Amazon tablet, and (if the enthusiasm for the Nook Color article means anything) there is a posse of like-minded readers who would too.

Google's sloppy approach to Honeycomb has created some uncertainty among third-party developers. The lack of Honeycomb source availability is going to guarantee that Gingerbread and Honeycomb tablets have to coexist in the marketplace for a long time. This is going to discourage third-party developers from embracing Honeycomb-specific APIs and user interface paradigms right away.

If Amazon were to swoop in today with a truly credible mass-market Android tablet and offer its own user experience layer, it might be able to attract third-party developer support in a way that Honeycomb hasn't been able to yet. I'm increasingly convinced that Amazon stands a chance of holding its own against Apple in the tablet market if it were to take the up the challenge. The key is going to be delivering a uniquely desirable device that fits into a separate product segment rather than wasting effort in a futile quest to reproduce the inimitable iPad.