Why an Amazon Phone Makes Sense

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Image: Mashable composite. iStock, webphotography

Amazon is holding an event in Seattle in a couple of weeks, and everyone’s invited. Really — anyone in the world can theoretically sign up, although the company says space is limited.

Democratizing a tech launch event — typically a very insider-y affair — is an uncommon, if gimmicky move, although it suggests that what Amazon has up its sleeve is pretty big. Whatever Amazon will unveil, teased in a comically vague video, will certainly be aimed squarely at a mainstream audience, and the most credible report so far says it’ll be an Amazon-branded smartphone.

Rumors about an Amazon smartphone have circulated since the company unveiled its first Kindle Fire tablets back in 2011. For almost any hardware manufacturer, it makes sense to offer both a tablet and a phone — usually several.

After all, the technologies are virtually identical, so why only make one or the other when you could have a hand in both markets?

Not your father’s Amazon

But Amazon isn’t a typical hardware manufacturer. The company doesn’t make the Kindle Fire tablets because it excels at building devices — it makes them solely for the purpose of putting the company’s digital services, such as Amazon Instant Video and the Kindle bookstore, front and center in a customer’s tablet experience.

“With their tablet product, [Amazon] undercut the competition and did very well,” says Tuong Nguyen, a research analyst at Gartner. “But I don’t know what they can possibly offer me … that would be compelling enough that would make me want to have an Amazon phone.”

For a company that’s all about selling content, building a device that consumers want to use to consume that content (i.e. a tablet) is a logical move, and the strategy has worked pretty well so far. Apple’s iPad is the clear leader in the tablet space, but Amazon’s Kindle Fire devices have done very well by all accounts.

Smartphone owners use their devices differently from tablets, though, so the content-consumption logic doesn’t translate so well to that device. Add to that a market that’s already extremely crowded, and the headaches of dealing with wireless carriers and technologies, and you can see why Amazon has ignored the smartphone space so far.

But there are two major market forces that could be factoring into Amazon’s decision that now is a good time to enter the smartphone market. The first is that tablet sales have flatlined: People aren’t buying them at the same clip as they used to, even though prices are at an all-time low.

“If Amazon is trying to gain a bigger footprint, then tablets have limits,” says Harry Wang, director of mobile product research at Parks Associates. “The next frontier is the shift to smartphones, because that’s a bigger market.”

Second is the rise of the phablet. Smartphones with big screens have been popular for a while, with the average size of a flagship Android phone now a little over 5 inches. Some are over 6, and there are rumors of even 7-inch phones on the way. With larger screens and ever-faster processing power, today’s phablets are almost as good as tablets at “consumption.”

If Amazon is feeling the squeeze on tablet sales, it would likely see the smartphone market next door — an order of magnitude larger — and decide it couldn’t ignore that opportunity any longer. Building the hardware would be relatively easy, given its Kindle legacy.

Standing out from the crowd

Of course, in today’s smartphone market, hardware’s the easy part. What’s hard is differentiation — giving customers a reason to pick your phone over competitors. Amazon’s teaser video appeared to imply that some kind of visual feature (3D holograms, perhaps?) would make its new smartphone stand out.

Whatever the novelty is, it’s almost definitely not what people will buy an Amazon phone for. Innovative hardware might generate headlines, but it doesn’t sell phones, where people mainly care about design, user experience and app availability.

A hologram that moves with your head will get pretty old by the second day, and competitors would soon replicate the feature anyway. “We’re not about hardware anymore,” says Nguyen. “It’s all about eyeballs.”

Amazon has other ways to differentiate its smartphone, however. It could offer an new kind of app or service that’s exclusive to owners. An Amazon phone could offer a custom-designed mobile shopping experience, which would be attractive to many users. Parks Associates says 39% of all smartphone owners use retail apps — and that they’re used, on average, only slightly less than video apps such as Netflix and YouTube.

More likely, Amazon will launch its phone with a new pricing model. The company has always been aggressive in pricing its Kindle tablets, and it’ll no doubt do the same with a theoretical smartphone.

What would really take things to the next level, however, would be if Amazon offered its smartphone with a free (or nearly free) data plan. The company already sells LTE versions of its Kindle Fire tablets with free limited data. What if it convinced just one carrier to extend that model to a phone?

Whatever the pricing model ends up being, you can bet Amazon Prime membership will factor in. Chances are high that any owner of Amazon hardware is also a Prime member (Kindle e-readers excepted). The service will likely come bundled with the smartphone in some way; perhaps Prime members will get discounts on wireless services.

“They already have about 22 million prime members,” says Wang. To those members, he adds, “Amazon could offer a great value in a smartphone.”

Will creative pricing be enough to convince people to buy Amazon’s smartphone? If the hardware is good enough — and there’s no reason to believe it won’t be — there’s a good chance. In any case, Amazon is feeling enough desperation and hubris (if those delivery drones are any indication) to make a go of it.

Amazon launching a smartphone would be unusual, risky and probably gimmicky, but there are ways it could work. And if Jeff Bezos has that market in his sights, a year from now it may be hard to imagine a world without a Kindle phone.

Read more: http://mashable.com/2014/06/05/amazon-phone-sense/

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