If you listened to conventional wisdom, it’s a terrible time to launch a smartphone. The U.S. market is saturated with iPhones and Android devices and Apple and Samsung have a vice-like grip on the market. But Amazon doesn’t care. It’s announcing a phone tomorrow, and it believes it can put a dent in things.
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The key will be in how Amazon hooks in customers with a cut-throat prices, and holds them there with a alluring ecosystem of apps and content.
The company will probably display Apple-like control over distribution. When BlackBerry announced its last-ditch BB10 smartphones last year, it boasted support from 150 carriers. Not so with Amazon. It’s reportedly keeping things exclusive with just one: AT&T.
For all we know, Amazon won’t even sell its phone through AT&T stores — it’ll put a lid on overheads and inventory by keeping the shopping experience exclusive to it website, just like it initially did for the Kindle. We’ll find out more on that on Wednesday when Amazon makes its new-device announcement at 10.30 am Pacific Time.
In the meantime, who might Amazon even hope to sell to? Despite Apple and Samsung’s dominance, there’s an opening in the U.S. market for people who still use basic feature phones. Only around 58% of American adults own a smartphone, according to the latest polls from Pew.
“It’s generally an older population who are thinking about a smartphone experience,” notes Jefferson Wang, a mobile technology consultant at IBB Consulting. One potentially attractive feature for smartphone newbies is the Mayday option that Amazon already puts in its Kindle tablets. You can tap it in Quick Settings to connect with an Amazon technical advisor for a video chat, often in less than a minute.
These troubleshooters can take over someone’s display and guide them through a problem, meaning the user can skip making an appointment at something like Apple’s Genius Bar or calling their carrier. It’d be surprising if Amazon’s phone didn’t also come with a Mayday option, says Wang.
Another target audience skews younger, to tech-savvy people who don’t consider themselves tied into any ecosystem like Apple’s or Google’s. They might own an iPhone, for instance, but they’ll use Spotify instead of iTunes to listen to songs. If they own a Android phone, they won’t use Google Drive to store phones but Dropbox. “They purposefully use over-the-top applications,” says Wang.
These are the other potential customers that Amazon can grab, because it won’t be too much trouble to port a raft of digital assets like photos and music to a new device.
How might Amazon keep those new customers loyal? Amazon’s phone is expected to feature a quartet of front-facing sensors that track your head (and possibly your eyes) to show images on the screen in cool 3D. That’s not just a neat marketing gimmick to get people talking about the phone. It’s the kind of alluring enhancement that will allow app developers to augment their games and even content in a way they can’t for other ecosystems.
What helps is that Amazon now has a growing number of developers already creating apps for its Kindle tablets. There are more than 240,000 apps on Amazon’s app store, a number that’s tripled just in the last year. Developers seem financially happy on Amazon’s platform. While developers have been financially frustrated with selling in-app content on Android, they’re making money through Amazon’s tablets: 65% of Amazon developers have told the company that their revenue on the Kindle Fire is the same or better than on other platforms.
The bottom line is that Amazon will benefit from having already started building an ecosystem around tablets and TV products, reversing how Apple started its app ecosystem with just a phone.
But the most important feature in that ecosystem may well be Prime.
Amazon already has 20 million customers subscribing to its Prime service, paying between $39 (for students) and $99 a year. Prime gets them two-day shipping on items they buy on Amazon.com as well as movies and music they want to stream. Like Apple’s iTunes, it’s a route to loyal customers thanks to super-easy credit card payments and a wide range of physical and digital products.
With a phone, the next big use for Prime could be data, and a new way to pay for phone bills. According to BGR, Amazon plans to announce “Prime Data” as a new kind of data-calling package that draws from AT&T’s network. That gives Amazon another opportunity for control – not only of the over-the-top service experience on the phone, but in the fundamental transactions for a network connection that people have solely had till now with a carrier.
Amazon could also, for instance, offer its current, 20 million Prime subscribers a discount if they switched to an Amazon phone.
“Packaging that gives them a lot of options,” says Wang. “When you have three products that control three big screens [Kindles, Fire TVs and soon a phone] you can have a complete home entertainment bundle.” But, Wang adds, “they’re going got have to be extremely aggressive with pricing content.”
A company that’s forgone profit to grow to the gargantuan size it is today probably won’t have too much trouble with that.
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