What Amazon can gain by releasing a Kindle phone

May 4, 2012

At first, there were doubts and hesitations. The general consensus was that if more experienced manufacturers were having trouble cracking Apple’s tablet dominance, what chances could Amazon possibly have?

If you check the latest tablet market share in the US, however, you’ll see that Amazon has succeeded in proving detractors wrong with its Android-powered tablet gamble. Moreover, the online retailer, with only one device under its belt, the Kindle Fire, has now secured the lion share of the Android tablet market, with an assuring 54.4% lead in just three months of its availability.

It’s easy to dismiss the success of Kindle Fire as a fluke, but for others, it’s simply a case of Amazon doing a darn good job of creating one of the most complete content ecosystems, one that can be rivaled only by Apple. More, Amazon had the guts, as well as the cash to sustain it, to sell its tablet at a loss.

At $199, the 7-inch Kindle Fire has found its niche as a content-consumption device that doesn’t need the latest and greatest of everything. Is an Amazon-branded smartphone next on Jeff Bezos to-do list then?

According to Wired, one Citigroup analyst, Mark Mahaney, says that a Kindle Phone might be out as early as the last quarter of 2012, the same time of year when the Kindle Fire was released to the delight of many consumers. Mahaney wrote that “Based on our supply chain check, we believe FIH [Foxconn] is now jointly developing the phone with Amazon.”

Though a Kindle phone seems like a natural progression, Amazon can expect to face a tougher competition in the smartphone market. Then there’s the question of data consumption, which is less of an issue for a Wi-Fi device such as the Kindle Fire, but might be a stumbling block for a mobile phone.

While the portability factor of a smartphone, compared to a tablet, is a positive point, there are concerns that the desire to consume content will require customers to invest in expensive data plans. It wouldn’t hurt to have the support of one of the bigger carriers in the country to market the phone in a more traditional setting, since Amazon won’t have any problems selling it online.

Knowing Amazon’s ability to survive on razor thin margins, if it offers the Kindle phone with a sub-$100 price point (or however low is Amazon willing to go), it can really push content downloads on its digital storefront to a whole new level.

With Facebook contemplating entering the mobile phone market and Microsoft forming an alliance with Barnes & Noble, going on the offensive might be the best defense strategy for Amazon. When and if Amazon rolls outs the “Kindle phone”, we’ll probably see the same disruptive effect that the Kindle Fire had created in the tablet market last year.

Does the idea of a Kindle phone excite you? Do you think it will help drag prices of smartphone down, like Kindle Fire is doing to the Android tablet market?

Comments

  • 8PAQ

    Or, maybe Kindle Fire was just a short term success and is now falling back to earth:
    http://www.idc.com/getdoc.jsp?containerId=prUS23466712

    • AppleFUD

      It called holiday sales. . . . as the entire tablet market dropped by 38%.

      So I guess we should conclude that “tablets are done and were just a fad.”

  • AppleFUD

    I couldn’t resist their latest discount on the Kindle Fire for $139 — I’ve always thought the PlayBook’s design was the best and most comfortable to hold and since this will be an insomnia device I figured what the heck, I’ll most likely Flash a custom ROM on it and dump my last remaining HP TouchPad.

    However, out of the box the Kindle Fire should have been better at the software level. I understand the minimum hardware to keep the price down but the software isn’t as good as it should have been, and people won’t stand for that on a smartphone. Not now when you can get pretty good devices free or very cheap on contract.

    So if they do release a phone it can be another boon to their ecosystem and I’m sure people would enjoy that tie in however the software needs to be fluid.

  • http://yellowrex.com YellowRex

    I don’t see it. Can’t fathom Amazon getting into the phone business anytime soon. I’m not sure they’ll even hold on to the Android tablet business past June.

    • Dinoshark

      Reason? Genuinely curious.

      • http://yellowrex.com YellowRex

        I don’t see their competitive advantage in the phone space. They’re happy having their apps on the existing Android phones.

        The tablet market was wide open, but the phone market is not.

        It’s tough to squeeze a compelling shopping experience into a phone-sized display to really get lock-in the way they can with the Fire.

        I suppose it could happen, but I’d be really surprised if so.

        I also expect the Android tablet market to take off in June with the Nexus tablet, the Asus Transformer Pad Infinity, and whatever Samsung has cooking.

        • AppleFUD

          So, from your argument we should also conclude that apple should not be able to get vendor locking with the iphone? Cause apparently size matters?

          It’s all about the ecosystem and if amazon puts out a compelling device most users will never root it or put Google Play on it, thus they will achieve the same type of lock-in that apple has — profits form their app store, music, videos, etc . . . IF they can get the carriers to use it and IF they can put out a compelling device.

          I really don’t see how the size of the device has anything to do with it. It isn’t like Amazon doesn’t have digital services to offer.

          • http://yellowrex.com YellowRex

            Way to completely ignore all my other points. Reading comprehension and critical thinking fail.

            Getting carriers to use and putting out a compelling device *compared to what’s out there already* is a biggest task than you seem to think.

            The tablet market was wide-open except for the iPad. Zero other tablets had been a commercial success when the Kindle Fire was introduced. The same cannot be said for the phone market. Samsung and HTC have some great devices out there already with lots of market penetration and some name recognition, and there’s a bevy of low-cost Chinese handset makers looking to establish themselves (ZTE, Huawei, etc.). It’s a pretty cutthroat market.

            I don’t see what Amazon has that can make an “Amazon phone” a compelling experience over what’s out there already, unlike the tablet space, where they’re playing to their e-reader strengths and brand recognition in that form factor.

            Also, Amazon *already* has their digital services on a lot of Android phones. I don’t see the same need to subsidize a device to get Kindle/MP3 store app installs.

          • AppleFUD

            This argument is as flawed as your previous.

            The Kindle Fire can hardly be said to be “better’ or “more compelling” than any of the top of the line tablets available at the time it came out. It was the price & ecosystem that sold it, yes it’s a softer market however, phones are upgraded every year or two and it really is a soft market for smartphones as well — only a small percentage of the world population are using them at this point in time. Therefore, it’s clear they don’t have to put out the “best hardware” to have a compelling device, carriers are another story as I stated.

            You claim ‘zero commercial tablet successes other than the ipad’ yet we see a smartphone market ruled by apple and Samsung — 99% of the profit between the two????? Seems a little similar, no? And wasn’t Samsung already releasing tablets? If your arguments held any water Samsung should be killing in tablets — after all they have much more market penetration in these areas.

            Like a tech fan you are putting hardware over marketing, brand awareness, and ecosystem — all things apple uses to stay be successful and so will Amazon.

            The idea of “market penetration” is a little naive in this case. Amazon has massive market penetration in many ways and much more awareness in general and in the public’s mind, more than most all handset vendors.

            Yes, they have their apps available on smartphones. . oh, wait, they had them available on tablets as well and yet they bothered and are still bothering with tablets?!?!?!? And I have a critical thinking failure? If your argument here held any water Amazon wouldn’t have bothered with tablets at all because, they already have their apps/ecosystem available on all of them.

            It’s about more than that. Like apple, Amazon wants to get “lock-in” of customers — full in on their appstore, digital goods, and of course the rest of their wares if possible, thus eliminating form your awareness all other competition, just as apple does. If you can’t see that and how screen size just doesn’t matter then you have a more serious failure in critical thinking than one can imagine.

            You may not be able to see how an Amazon phone could be more compelling than another but it isn’t about you seeing it or just the hardware. It’s about Amazon seeing the reasons for it, and IMO they have some good reasons to get mobile users to lock into their digital ecosystem (which is pretty massive btw) — don’t forget how profitable iTunes music has been over the years for apple — you don’t think Amazon wants that for the musics, ebooks, and movies? LOCK IN, not just an app on another platform sharing profits!

            Now, as to their phone being competitive compared to others, as I stated. . . that’s the big IF and IF carriers will allow it. And IMO it’s only the second IF that Amazon is worried about. I’m pretty sure they would like to put out the device, but how can they get carriers to go along with another device that is not controlled by the carriers themselves — we see how difficult it is for the Nexus line not to be controlled by carriers.

            Sorry you are taking it personal that I pointed out the flaws in your arguments and that hurt your feelings. You seem to be looking at the whole idea from a hardware enthusiast point of view, and it is about much much more than that and if you can’t understand vendor lock in then you obvious don’t get why MS & apple are as successful as they are.

            Hope I covered each point clearly enough for you this time.

          • http://yellowrex.com YellowRex

            Now I’m really confused.

            Prior to the Kindle Fire, the share of the tablet market by everyone other than the iPad was >1%. Zero tablets other than the iPad were a commercial success in the consumer market before the Kindle Fire.

            Amazon had an opportunity there to leverage their e-reader brand and break open the tablet market. They did so.

            The smartphone market is *not* dominated by a single model or manufacturer. In addition to the iPhone, there are lots and lots of high-selling smartphone models from Samsung, HTC, Motorola, Nokia, and others.

            The opportunity for differentiation in the market is not there to the same extent it was in the tablet market.

            Perhaps Amazon will leverage their brand and digital services assets and surprise me, but I really doubt it.

            I think their best bet is for Google to alienate some of the current hardware partners and Amazon to pick up the services end for them with the Amazon app store and their other services.

          • AppleFUD

            Oh, so by your account the iphone should never have succeeded because there was RIM, MS, & Nokia dominating smartphones and little chance to differentiate themselves. . . we’ve seen how that has gone.

            And how much is Apple & Samsung dominating the Smartphone market now? And how much of the total smartphone profit does apple & Samsung make? 99%

            And you want to throw in HTC, Moto, etc and say they are somehow competitive and successful? And therefore little chance to differentiate?

            Something Amazon needs to worry about?

            And Samsung just jumped in with Android. . . about two years ago?

            And what percentage of the entire population where Amazon is are using smartphones? These are things you seem to ignore in favor of a “competitive” smartphone market where all but apple and Samsung lost money last quarter. Seems to me there is lots of room for someone to steal some thunder.

            Amazon is the ONLY Android vendor that has an ecosystem comparable or better than apple’s. I don’t think you are getting that that is a big deal or you think it is irrelevant because it may be to you, and are therefore focused on the fact that Moto, HTC, etc all have devices but they are ALL doing poorly (but you ignore that), just like they were with tablets. . . not because of hardware, because they don’t really have a compelling device/ecosystem that separates them from everyone else especially from apple. I think Amazon *could* have such a package.

            And finally, it doesn’t matter how many tablets were NOT successful when the KF came out, there were many available and they failed where the Kindle Fire did not. The question is WHY is Amazon’s tablet doing well even though it isn’t a *great* tablet when compared to its competitors and will their phone be as successful?

            Your initial argument of the size ignores Amazon’s entire digital ecosystem and is a total failure of critical and pragmatic thinking. Your second argument(s) that the tablet market was weak yet the smartphone market is not is invalid, both markets have all the same players. . . minus Nokia which is dropping like a rock, and they are all doing poorly in the smartphone market except two. And Amazon succeeded with what was/is regarded as a minor sized tablet, running an older OS, lower spec hardware, etc.

            Not saying they will put out a smartphone, but I can certainly see a compelling reason to buy it for many who want such a tightly integrated ecosystem similar to Apple’s without the apple tax and all that comes with the bitten fruit and having an Android device directly supported. As there is NO other competitor offering such an integrated package at this point in time.

            While it might be a good idea for Google to do as you suggest I don’t think they are and I think Amazon thinks they don’t need Google or want them. They want to do just what apple is doing — get total lock in of their customers and they have the ecosystem to do it, or at least make it an intriguing offer to customers. . . just my opinion anyways. . . nonetheless, I do think my critical thinking is in tact ;)

  • Eurisko Pebenito

    it would be epic if amazon created its own mobile network then released a smartphone, then they could create their own plan prices, but i know that’s just a dream because of how money and time consuming that would be.