Guess whose phone we won’t be talking about (much) next year
It would be easy to dismiss the timing of last week’s announcement of the Amazon Fire smartphone as a cheap attempt to deflect attention from all the bad PR Amazon has been getting lately. Yet, even if it were true, that would be the only cheap thing about it. Turns out the phone is super expensive, especially considering its vendor.
Anyone who follows Amazon’s business knows it is the most horizontally expansive retailer out there and that it deliberately doesn’t make much money on anything. Instead, Amazon is playing a very long, low-margin game of nickels and dimes from repeat consumption across as many product lines as it can offer, at scale. With over 200 million credit cards on file, it will make it up in volume, the story goes, which is why creating as many Amazon shopping venues as possible (Mac, Windows, iOS, Android, Kindle) is key to its model.
To wit, when Jeff Bezos introduced the Kindle Fire tablet in the fall of 2012, he said, “We want to make money when people use our devices, not when they buy our devices.” That’s smart positioning against an online shopping market share monster like the iPad, and investors have loved that stance overall for years, even after repeatedly reporting low profits and smokescreen unit sales and share figures. It all makes sense. But, wait: $649 phone… from… Amazon?
Where does a company that prides itself on lowering the barrier for consuming its offerings come off launching a $649 smartphone in 2014? More importantly, years from now, are all of today’s skeptics going to sound as foolish criticizing the Fire’s price (and therefore odds of success) as ex-Microsoft CEO Steve Ballmer does now for literally laughing at the iPhone’s intro price in 2007?
The answer to the first question isn’t too hard to figure out. Rather than race to the bottom of the already (over)commoditized low-end market to get some scale, Amazon is trying to elbow in next to Apple and Samsung at the high end—those two companies alone make up more than 100% of the entire smartphone segment’s profits after all (yes, >100%, because everybody else is losing money)—but Amazon is offering it in a way that channels the entire experience through a narrow lens that can only focus on Amazon’s purchase ecosystem. And hey, free Prime! And 3D! And shiny!
You can just hear the marketing meetings in your head, can’t you? Very engagement! So profit! There’s just one problem. In its hubris, Amazon seems to have missed something: Setting aside its minor scope in apps and entertainment content (raise your hand, guy who has used Prime to stream a movie), even the bread-and-butter Amazon store we all use isn’t well-liked, it’s well-tolerated. And it’s just a store, not some experience we want to repeat all day, every day.
Disney, maybe. Amazon? Not like this.
Remember the Facebook Home phone? We don’t really either, but we bet HTC does. That and the Fire phone will share a thesaurus entry soon enough. Amazon will artificially keep it alive, of course, and the ginned-up, “Customers Also Bought” popularity of the Fire phone will undoubtedly lurch through the increasing amount of interstitial interruptions to the Amazon shopping experience like Kindle Fire’s zombie cousin, irrespective of what device you’re using, annoying and alienating informed shoppers apace.
Serious questions: Why’d these guys patent One-Click payment if all they want to do is interrupt the path to payment? Is the Fire smartphone just a giant interstitial ad between the user and the material world?
Wait, what if they sold it for $649 with the guarantee of no interstitial ads?
Somewhere, Steve Ballmer is laughing his ass off.