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Cautiously Optimistic About The Amazon Smartphone

|Includes:, Inc. (AMZN)

Amazon's "Kindle Phone" has long been rumored and, for the record, I've been somewhat skeptical about the feasibility of Amazon being able to make much of a splash with it-we're talking years and years of catch-up here. But with Jeff Bezos' vision, can Amazon really do any wrong at this point? Well, except for this fun story.

Amazon already has a wide range of hardware devices, and a smartphone would only further diversify and bolster customer access to their movies, songs, and digital books. And with the smartphone market growing 21% to $338.3 billion, Amazon would be completely daft if they didn't at least try to cut themselves a slice of the pie.

Jan Dawson, a technology industry analyst argues that they're most likely going to continue to risk losing money on the hardware with the goal to make money later on entertainment content. "Amazon's play here isn't to make a ton of money off smartphone sales; it's to get people to spend more money with Amazon as a whole," said Dawson. And while this position is agonizing to the point of maddening to investors, the company's modus operandi just seems to work.

One reason why Amazon may struggle in this space is because its favorite competitive advantage-aggressive price undercutting-has already been rendered completely ineffective thanks to carrier subsidies in return for contracts. They also have a long ways to go to compete in the application space, looking like children with their 70,000 apps compared to 1.2 million each for Google and Apple.

So all in all, it looks like Amazon has a long uphill battle to fight if this is indeed their chosen battle. But I have a little faith, and I believe most Amazon long-term investors do, that this won't be a complete wash.

Disclosure: I am long AMZN.