Amazon May Enter Smartphone Market

Tom Risen
June 17, 2014

Amazon is likely to enter the smartphone market on Wednesday, unveiling a new device during an event in Seattle with plans to ship it to market in September. This would put it squarely in competition with the annual fall debut of a new iPhone.

The online merchant rarely hosts press events, and the last major one was the debut of the Kindle FireTV console. Amazon's expansion of its options this year including its Prime subscription service hint at the benefits the company could gain. In May the company announced shopping on Twitter, which could potentially be a very profitable venue for mobile payments if it is done right.

Success is not guaranteed entering the competitive and expensive smartphone market. Google failed at its Nexus One attempt at a phone in 2010 then later hoped to compete when it bought Motorola Mobility handset maker for $12.5 billion in 2012. Google recently took a huge loss when it failed to compete again and it sold the phone company for $2.9 billion.

Even Facebook tried and failed at launching a phone in 2013, hoping to become more involved with its audience - 60 percent of whom access the social network on mobile devices. A well-planned, innovative Amazon phone could data mine its customer base to learn how to offer better products while linking with the tech giant's other services and devices including Kindle, says Michael Pachter, managing director for equity research at Wedbush Securities.

"I think Amazon has an integrated strategy to offer a variety of hardware solutions that allow a variety of media," Pachter says. "They will have Kindle for books, movies and games; smart phones for games, movies and communication; and Fire TV for movies and games, all working to help them monitor consumer behavior and spur more transactions."

Success of the phone depends on its application ecosystem, which is why the company showcased phones to developers recently. The news first broke about such meetings in April.

"The phone will likely come pre-loaded with Red Laser [mobile shopping platform], Amazon Prime Instant Video and a link to Amazon," Pachter says.

Amazon already has a vast ecosystem of 240,000 applications available in nearly 200 countries, but that's a fraction of the 1.2 million applications in Apple's iOS operating system. Apple's trademark iPhone dominates the smartphone market along with its rival Samsung, which builds devices using Google's Android operating system.

"A lot of people will be quick to point out what apps are not available," says Ramon Llamas, research manager for the mobile phones team at the International Data Corporation.

Amazon may have a hard sell encouraging people to leave other phone ecosystems, especially if they need to pay to download their apps again for the new device, Llamas says.

"The challenge for Amazon here is how do they make shopping on a mobile phone not just easier but an absolute delight," he says.

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