Amazon.com's Fire Phone offers mid-tier specifications for a high-end price.
It thus requires ignorance of the smartphone market, to be bought.
The phone would be very profitable if it sold in high numbers.
However, the most likely outcome is for the phone to be a dud given how absurdly mispriced it is.
Amazon.com (NASDAQ:AMZN) launched an amazing phone. But not amazing because of what it can or cannot do. It's amazing in an altogether different way. Amazon.com's phone is amazing for what it tries to do. It tries to pass off a mid-tier phone for a high-end, flagship, phone.
First, its specifications are mid-tier
There's no denying that a 720p display only comes with mid-tier phones at this point. Even cheap high-end devices are at 1080p or higher (though truth be said, the usefulness of going higher than 1080p is debatable).
And there's no denying that the Snapdragon 800 was last year's SoC for high-end phones. This year the market has moved on that regard as well, to the Snapdragon 801 and 805, which are faster and consume less power.
As for the 3D gimmick, both the always-on cameras and more specifically the parallax effects are going to be costly in terms of battery power. Running 3D effects on the display is the same as running a game, you can imagine what always on gaming would do to your battery life (I wonder how the reviewers are going to account for this, as the battery life will be different with a static and moving phone).
In short, the Amazon.com Fire Phone is worse in every specification when compared to flagships such as the Samsung S5 or LG G3. It is comparable in specifications to the Motorola X, and somewhat worse than the Nexus 5.
Second, and this is the best part, the price is outlandish
While the Fire Phone shares mid-tier specifications, it at the same time commands a high-end price. It costs $199 with a 2-year AT&T contract or $649 unlocked. This is iPhone 5S / Samsung S5 / LG G3 territory. It's also double the price of the comparable (spec-wise) Motorola X and Nexus 5.
Think about it. It costs double the price of comparable products, which run full Android and thus have access to a much wider selection of apps, along with all the Google services.
This phone is thus a bet on the ignorance of Amazon.com customers who might be fooled by the AT&T carrier subsidy, or at most a bet that some Prime customers will be so engrossed by Prime as to take a massively unfavorable deal on the phone.
This phone is profitable
Contrary to Amazon.com's supposed "sell hardware at cost, make it up on content" philosophy, the Fire Phone is highly profitable. I'd expect the BOM to come at around half the phone's cost at most. So this time if Amazon.com manages to sell a lot of these incredibly mispriced phones, it will make money.
Indeed, it makes one suspicious just why Amazon.com is now so aggressively trying to make money that it's willing to misprice a phone so much. You can imagine that the customers buying the phone will at some point end up discovering that they've been had.
The Kindle Fire 8.9" gives us a clue
It isn't actually the first time Amazon.com tries to make good money selling hardware. When it decided to sell the Kindle Fire 8.9" tablet at $379 it was playing the same game.
Yet, by pricing that particular tablet at premium prices, what happened? The tablet languished. It ended up 40th-50th in Amazon.com's best sellers' list, a place at which it was probably just selling hundreds of thousands of tablets per year at most. Today it dropped even further, to 63rd.
That precedent is showing us what happens when Amazon.com tries to sell at a large mark up: it doesn't sell much. After the initial buzz around the Fire Phone, I expect the same to happen. The phone won't sell much - it can't, it's clearly too expensive for what it offers.
Maybe some customers will be fooled by the $199 price with the mobile carrier contract, I see no other way for this phone to sell anything decent. And even those would have to be oblivious to the fact that an iPhone 5S costs the same when paired with a carrier contract.
It's a massive mystery why Amazon.com chose to price its Fire Phone so expensively. Were this phone to sell and it would impact Amazon.com's profitability positively, but at this price it requires deep ignorance of the smartphone market to even contemplate buying the phone. It requires ignorance of what the alternatives cost, both inside and outside a carrier contract.
My own take is that the phone has little chance of selling in high numbers. The phone is an attempt to "stick it to the Prime customer." We'll see how it does.
Disclosure: The author is short AMZN. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.