Amazon - Smartphone Combo: A Hop Or A Flop?

Jul. 3.14 | About: Amazon.com, Inc. (AMZN)

Summary

Amazon launched its first smartphone with 3D imaging along with a firefly feature that allows the phone to make use of audio and object recognition to interact with its user.

The new Amazon smartphone would enable multiple revenue streams from mobile retail sales, mobile content and advertising.

Smartphone sales account for 32% of all mobile retail sales including tablets.

"The smartphone market is slowing down towards maturity" is a well-known phrase these days. The phrase has put smartphone manufacturers in a perplexing situation. Amazon Inc. (NASDAQ:AMZN) believes that consumers need something new now. Apple Inc.'s (NASDAQ:AAPL) iPhone has dominated the market for the past seven years and Amazon believes that further innovation could take the market to the next level.

Fire Phone

Amazon recently launched its first smartphone offering 3D imaging along with a firefly feature that would allow the phone to make use of audio and object recognition to interact with its user. The phone is literally designed in a manner that would allow it to "watch you watch it" through its four front facing infrared cameras. The smartphone would then smartly adjust the imaging by recognizing the distance and the angular direction of the screen from your face to enable you to see the images in a more detailed manner.

The smartphone is not priced any differently from the existing dominant players like Apple and Samsung (OTC:SSNLF), which raises the question of whether or not the new device would be able to succeed with the consumer base. The new Fire Phone would be priced at $199 under a two year contract with AT&T (NYSE:T) packed with 32GB of memory and 12 free months of Amazon Prime. The phone also combines previously launched Kindle Fire and Fire TV set-top box.

The pricing of the phone has worried Amazon's investors who believe that the device is priced too low and might affect the margins. In addition to that, there are doubts concerning whether or not the 3D imaging feature would be enough to convince consumers to switch or change their present phone because the phone does not come without its own set of flaws. There are a few glitches that still need to be fixed. One glitch, for instance, is that the phone opens up hidden menus and changes the size of images as the user nods or changes the direction of their head. Users do not essentially want to be bound to keeping their heads still in order to use the phone. However, besides a few glitches the phone does offer something new to the smartphone market.

Will the phone succeed?

Amazon is well aware that it has stepped into a crowded space but and it is banking on the fact that customer loyalty is not an absolute figure. Consumers do switch between brands if they find better features or features that suit them in other brands. Although customer loyalty is high among Samsung and Apple, consumers will switch brands based on price, features or some other aspect. So even if 70% of all mobile phone users in the US and UK own a smartphone, Amazon is likely to attract a few if not all customers.

Source: Statista.com

Amazon's goal is not attaining significant market share right now; the company has just entered a saturated market and it is well aware of that. The only goal as of now is penetrating the smartphone market and surviving. Over time, Amazon's strategy has always been to attract just a small fair chunk of spendthrift customers. The company offers a low-priced device that leads to profits by guiding customers towards the Amazon marketplace. Hence, more likely than not, the new Amazon smartphone would just be a means to multiple revenue streams such as mobile retail sales, mobile content, and advertising.

Smartphone sales account for 32% of all mobile retail sales including tablets. Moreover, the market for smartphone retail sales in the US is expected to grow at the rate of 25.4% to $18.50 billion according to eMarketer's estimate. Presently, Amazon has only 0.30% of the $33 billion mobile advertising market. Amazon's attempt at entering the smartphone market is to increase its share of the global market. The growing mobile advertising, particularly on the m-commerce end is an opportunity to enhance the profit margins and market share of the company. Amazon claims that its Fire Phone would be able to recognize more than a hundred million items and the company may enable customers to pay for anything with just a couple of taps if they choose to link the service with their credit card information. Presently, Amazon has more than 20 million prime members; the medium for payment and advertising is there, the only difficulty is to make the Fire Phone popular with consumer base.

Concluding Remarks

The Fire Phone could certainly become a success if the company makes sure that its phone does not come with a poor battery life compared to rival phones in the market. Battery life and price are two extremely important features that affect the buying decision of consumers. I believe that the phone could survive if the company manages to keep the two fairly on par with the products of its rivals.

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