According to Bloomberg, Amazon is developing a smartphone that is meant to compete both with Google and Apple's phones. This Amazon smartphone is apparently going to be manufactured by Foxconn, the same Chinese company that also makes Apple's iPhone, and they manufacture for a few other big tech companies in the industry as well.
This is not the first time we've first heard about an Amazon smartphone. The first time we heard about it they were preparing to launch their Kindle Fire tablet. Back then the rumors were also that Amazon wanted to make a 9″ tablet, which I tend to believe, but I think Amazon changed their mind at the last moment because they thought it would create a confusing branding strategy for their Kindle Fire. If the Fire was the perfect device for reading, then what would a 9″ one do? Plus, their App Store was, and still is pretty small for them to be jumping straight to 9″-10″ tablets, but it's possible we'll see one of those, soon, anyway.
Speaking of the the App Store and Amazon's device strategy, which was to sell the Kindle Fire for as low a price as possible, while making their money back on content – the problem with an Amazon smartphone is that you're a lot less likely to watch movies and read books on a smartphone, than you are to do it on a tablet. Plus, Amazon's offering is pretty limited in movies and sitcom content in other countries.
However, you might listen to more music on a smartphone, which is where Amazon's MP3 store could come handy. Also, it could explain why Amazon is pushing their App Store in Europe, among other things. All of these could tie into a strategy that is meant to make their content available to as many of their users as possible, all over the world. This might actually push Google to do something about the almost complete lack of content outside of the US (besides Android apps).
I'm not too excited about what the Amazon smartphone or their next tablet could be like, because I know that at the end of the day, they won't have the full Android OS, and even if they continue getting new code from Android (like from ICS), it would still be at least one version behind. Their app store is also a lot smaller than the Play Store, and Amazon tends to be as restrictive, if not more so, as Apple.
However, let's not forget that while the $99 TouchPad firesale may have had Google thinking about affordable tablets last year, what really pushed them over the edge, and wanting to make a $200 Nexus 7, was Amazon's Kindle Fire. If they can push Google and Android manufacturers to make a $250 phone that is unlocked and is almost as powerful and high-quality as a $600 one, then we should be very grateful for that. Since Amazon originally intended to go with Tegra chips for its devices (but changed their mind later), it's possible Nvidia is helping them make a Kai smartphone.
Hopefully, Amazon's smartphone won't be drowned in patent litigation and “licensing” right out of the gate, coming from both Apple and Microsoft, and possibly others, but Amazon seems to have taken some measures to prevent that. They've hired Matt Gordon, formerly senior director of acquisitions at Intellectual Ventures, which owns over 35,000 patents, to handle their future patent acquisitions. They hope this move will stop others from attacking them.