Amazon Smartphone Speculation

The Kindle Fire and how Amazon managed to break into the tablet market is a good place to start delving into how they might be approaching a possible smartphone. The company refuses to break down sales figures for its Kindle devices, so the numbers surrounding the Kindle Fire are typically estimates. NPD, a consumer market research company, calculates that 5.6 million Kindle Fires have been sold in the first two quarters that the tablet has been available. Not bad. The company seems to have successfully implemented a razor-blade business model where it sells the tablet (the razor) for cheap to attract and lock-in customers, and then sells content (the blades) on top of that, with which it makes money. This same strategy could be used to sell smartphones. However the smaller size is not necessarily ideal for content consumption, something which the tablet form factor is ideal for. People aren’t as inclined to watch full length movies or read books on a 4 inch screen as they are on larger hardware. So if this isn’t expected to be the driving force, what is?

Amazon caused quite a stir among traditional retailers and brick-and-mortar stores when it launched its Price Check app at the end of last year. The application allows consumers to scan barcodes in stores and compare prices directly with Amazon. Currently, given that the app is third-party software running on iOS or Android devices, using it is still fairly complicated. With its own hardware Amazon could build this functionality into the device, making it much more accessible and faster to use, for example straight from the lock screen. As in the Kindle Fire, Amazon would most likely build its own skin on top of Android. By making this shopping focused, the company would be well positioned to creating an ideal “shopper’s phone”. Amazon has a large and loyal customer base, and the website provides an excellent promotional channel to market and sell its own devices. Putting phones into the hands of its customers would also provide tons of user data. The recent acquisition of 3D map maker UpNext could be used to record where users make purchases or search for price information, and Amazon could use text and call data to make better product suggestions. Of course this would bring a whole range of privacy issues into the mix, but in a world where we have Facebook and Google, this might not be that big of a worry.

However the company will run into other issues should it launch its own smartphone. Unlike in tablets where there is still open space in the market and plenty of room to grow, smartphones have already become almost a commodity and a necessary product to own. Consumers are thus demanding the best, and are willing to pay instead of always going for the cheapest option. Amazon would most likely be relying on a low price to attract customers. While this can be difficult, the company’s brand and reputation should be powerful enough to entice buyers. Users know what they are buying into, and a small price tag would only make the device even more compelling. The phone would also be running Android, and even though Amazon’s Appstore for Android is not as open as the regular Google Play market, it still has enough to keep customers happy.

Where the company might also run into problems is in convincing carriers to sell the phone. Capacity constraints are already hitting many service providers, and a content heavy platform might be a tough sell. The company would be able to make it fairly compelling however, as it could subsidize the phone itself, relieving the carriers of this burden. By using the device to increase content and product sales, Amazon would be able to afford breaking even or even making a loss on the hardware itself. Another strategy they could try is what they have already done with the Kindle e-reader, where the screen cycles through ads when its not being used. What they need to achieve is a sweet spot between quality hardware and a price-point low enough to entice consumers but not too cut-rate to put them off. They have an excellent ecosystem to build the smartphone around, and the supporting content and services would make joining it as a platform fairly painless.

Other questions regarding the viability of an Amazon smartphone surround the design skills of the company, who has never really proven that it can create good looking and functional hardware. The Kindle Fire was ok, but definitely had some design quirks. Entering into an established market such as this without a previous reputation in hardware could also be a negative. Some might see a cheap smartphone by Amazon as lacking in quality. Also, adding to the actual creation of the device, being late into the game means that Amazon lacks patents. Given the hard fought battles that seem to show up almost daily where one company sues another over patents, it would be interesting to see how the giant e-retailer handles this issue.

Further evidence pointing at a smartphone release was the recent reveal of Amazon GameCircle, a rival service to Apple’s GameCenter. The rumors seem more and more certain as they appear, and despite questions over some of company’s competencies in this area, it wouldn’t be a surprise should we hear of an announcement relatively soon. There were plenty of concerns raised when rumors surfaced of Apple developing a phone, and look at how that turned out. With proper execution, Amazon can definitely play their part.