If Amazon does enter the smartphone market, it is widely expected to sell its phone for very little, perhaps even $0. It would then, in theory, make up for the lost money by selling lots of apps and books.
Here's the problem with that idea: By the time an Amazon phone comes out, Apple will be selling the iPhone 4 for $0. There are a bunch of Android and Windows phones available for a penny at Amazon. Those phones, even if they aren't top of the line, are going to be infinitely better than anything Amazon releases.
The real expense for people buying a smartphone isn't the phone, but the the monthly bill. In the U.S., you generally have to sign up for a two year contract when you buy a smartphone.
If you pay $200 for a brand new iPhone, that's $8.33 extra per month if you're going to keep it for two years. Keep it for three years and it's an extra $5.55 per month. Considering that a data plan will run you $90 or more, is it really worth it saving $8 a month to get an inferior product from Amazon?
But what about unlocked phones where you don't need to sign up for a contract? Android is price competitive there, and Apple is testing the pre-paid market now. And users still have to pay for a data plan.
Unless Amazon can figure out a way to kill the monthly data plan bill, then it has no pricing advantage.
More From Business Insider