Will The Amazon Smartphone Add $3.5 Billion In Revenue For Amazon?

Posted: Jun 16 2014, 9:26am CDT | by , in News | Mobile Phones

Will the Amazon Smartphone Add $3.5 Billion in Revenue for Amazon?
/* Story Top Left 2010 300x250, created 7/15/10 */ google_ad_slot = "8340327155";

Amazon will introduce its own entry into the smartphone market on June 18 if the rumor mill is right. Why does Amazon want to be there? What will be different about its entry into the race? How much will its product cost? How much will it add to Amazon’s meager profits?

The most interesting thing about Amazon’s rumored smartphone is a feature that will track your eye movement across its screen to create 3D images of the items that capture your attention. According to PC Advisor, the Amazon phone has “a front-facing cameras placed at each corner of the screen. These will track your eyes to monitor exactly where they’re looking and adjust the image on-screen to provide a 3D experience without the need for any special glasses.”

This 3D effect is the key point of differentiation for the Amazon smartphone which will feature a 4.7 inch screen with a 720p HD resolution; be powered by a Qualcomm Snapdragon processor; have 2GB of RAM; and four cameras with 640 x 480 resolution, according to PC Advisor.

The smartphone market is huge — 990 million were sold in 2013– and people are spending more time there – eMarketer expects people to spend 2 hours 51 minutes on smartphones in 2014 while PC time keeps falling to 2 hours 12 minutes. But Apple and Samsung — with 15.3% and 31.3% of the global market, respectively according to IDC — are controlling most of the market’s revenues and profits.

That profit pool has attracted new entrants in the past. But many of those – including Microsoft and Google's Motorola — have failed, according to the New York Times.

Investors are clamoring for Amazon to boost its thin 0.38% profit margin. Could this new smartphone help Amazon realize that ambition? Odds are good that Amazon will sell the device at cost in order to boost $99 Amazon prime subscriptions that will in turn increase Amazon’s e-commerce revenues.

The smartphone Amazon could add $3 billion to Amazon’s revenue and $500 million to its prime subscription revenue. If we assume that Amazon can grab 1% of the one billion smartphones sold — or 10 million units — and sold them at cost — which The Motley Fool estimates at $300 (including those four cameras), Amazon would add $3 billion to its top line.

Amazon’s goal is not to make money by selling the smartphones, but to make it easier for more people to go from thinking “I want it” to taking its delivery, according to the Times. According to The Motley Fool, investors estimate that Amazon has 20 million Prime members — those who pay $99 to get unlimited expedited shipping through 1-Click buying.

If Amazon can sell half of the guessed-at 10 million smartphones to people who sign up for Prime — those five million new subscribers would add $495 million to its Prime revenues and a likely increase to Amazon’s e-commerce revenues as well.

My guess is that these assumptions will prove wrong. Either Amazon’s efforts in the smartphone arena will crash and burn or the world’s consumers will be mesmerized by the 3D feature and will scramble to buy the product and set competitors scurrying to copy the feature.

One thing seems clear — Amazon does not appear poised to suddenly change its strategy of gaining market share by selling products and services at a price that’s lower than the competition. This means that very little of the additional revenue that might flow from its smartphone will enhance Amazon’s net income.

But Amazon is probably looking at its smartphone as a way to protect its existing customer base as much as it is seeking to gain new customers.

Which makes me think that Amazon is heeding the words of former Intel CEO, Andy Grove, “Only the paranoid survive.”

This story may contain affiliate links.


Find rare products online! Get the free Tracker App now.

Download the free Tracker app now to get in-stock alerts on Pomsies, Oculus Go, SNES Classic and more.

Latest News


The Author

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.




comments powered by Disqus