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Amazon Fire Smartphone: Risky Strategy?

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Amazon Fire Smartphone: Risky Strategy?
 
 

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Amazon Fire Smartphone: Risky Strategy?

Amazon finally releases a smartphone, but has Jeff Bezos made a mistake by releasing it on AT&T, at a price that matches the flagship smartphones from Samsung, Sony, HTC and Apple? No, because Amazon does not yet have enough corporate knowledge to make their smartphone a success. But the Fire smartphone will help them learn.

Although Amazon’s Kindle Fire tablets and Fire smartphones run on Android, it is important to remember that Amazon’s Android is not Google’s Android. Derived from the Android Open Source Project, the core of the operating system may be similar, but the extra features and applications that many consumers identify as being ‘Android’ are in fact closed-source applications and services provided by Google… and if you want those apps, you’ll need a licence from Mountain View and to follow Google’s rules and restrictions.

That’s not for Amazon, so they went ahead and used the Open Source Project as a starting point for their version of Android, adding in their own APIs and services for developers, creating their own game hub, building up an app-store using Amazon assets rather than those of Google Play, and working to bring developers into their ecosystem in addition to the Google Android ecosystem. Which is not the work of a moment.

That said, it was not surprising that Amazon used Android to extend the Kindle hardware range from their eInk devices into a tablet format, suitable for delivering multimedia, music, and video, to their customers. The Kindle Fire tablets are competent tablets, assuming that you can live with Amazon’s services and selling techniques in the majority of the apps.

Neither was it surprising that as well as work on their own hardware, Amazon has ensured that their storefront and Kindle apps are available through software for Google’s Android devices, Apple’s iOS and OSX hardware, and Microsoft’s Windows and Windows Phone operating systems. While official numbers have not been released, I have no doubt that the lion’s share of mobile income comes from these apps, rather than through the storefronts on Amazon’s Android powered hardware.

Into this mix comes Amazon’s first smartphone, the Fire. And like many others, the question I have is a simple one. Why?

As retail changes, Amazon will want to be at the forefront of that change. The Seattle-based company made its name in the online space while ‘bricks and mortar’ companies were still working out how to make the transition. When they did, Amazon was already there. The next major change is the switch from the desk-bound online store, to the mobile phone based store. There are many companies working on finding the right approach to mobile, with its lower conversion rates and limiting form factors of the smartphone hardware.

Amazon rightly will want to be part of that. Actually, the company is already there. The Amazon apps available across the operating systems create the digital storefronts, create the retail experiences, and power the media consumption of millions. Why make the jump to building their own smartphone?

The key might be in Firefly, the software in the new smartphone that allows users to scan anything to find and order it from the main Amazon store. But this can’t be the only answer as to why the Fire smartphone is being released – Amazon could easily work on that software and make it available for countless Android handsets, just as the Kindle app, the Amazon Music Player app, or the Storefront apps which are out there. Just run a closed beta, or an invite only approach, and you will get as many testers as you need. Seed the program with heavy smartphone users who are using Amazon Prime and you have a ready-made group of power users you can use to test out the ideas, principles, and operation of Firefly.

Instead of that approach, Amazon is releasing the Firefly functionality through their own high-spec handset that will have limited availability (on contract it will be available on just one US network, AT&T) at a price that matches the Samsung Galaxy S5 or iPhone 5S ($199 plus 24 month contract, or upwards of $600 for a SIM free handset). Who is going to ditch an S5 or a Galaxy to switch to the Fire phone for a two-year contract?

The Fire phone is clearly an exploratory device, to gain understanding and contribute to the next model. Presumably that second model is where Amazon will leverage the Amazon Prime membership, will use the retail opportunities control of the Amazon.com front page offers, and the distribution network that has been built up around the A to Z website.

The Fire phone is not going to be a best seller, or a big seller. It’s going to have maybe tens of thousands of users at best (rivalling the HTC First ‘Facebook Phone’ and its reported 15,000 sales), and those users are going to be dedicated Amazon users. Amazon will gain practical knowledge on their OS in a live environment, in dealing with a carrier partner, and in how people use Firefly on a dedicated handsets

This knowledge is unique knowledge, that cannot be gathered through Amazon.com, their tablets, or a direct to the customer approach.

Why has Amazon invested a huge amount of time and effort into a smartphone, potentially distracting their engineers from the bread and butter daily operations of the business? Because Amazon needs information, and the only way to get that information is to step into the smartphone market and learn it first hand. The Fire phone may be the first Amazon smartphone, but it’s not the Amazon smartphone everyone is waiting for.

Until Jeff Bezos and his team understand the market, the next Fire cannot be started.

Jeff Bezos Introduces Amazon's Fire Phone

 

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<a href="/latest_stories/all/all/31" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

 

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