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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?