Is the Smartphone Market Primed for an Amazon Phone?


Rumors of an smartphone have been around for about two years now, and new information from Bloomberg and the Financial Times could mean we're one step closer to such a device.

But could an Amazon phone really compete in a market dominated by Apple's iOS and Google's Android?

Speculating smartphone specs
According to Financial Times, there are three Amazon smartphone devices in the works, with one very close to being ready for the public. Bloomberg reports that the device would go on sale solely for Amazon Prime members. But despite being close, Amazon could still kill the project or delay the phone at any time. Amazon has said it has no plans to release a smartphone this year, so the earliest release would be sometime in 2014.

The rumors have Amazon working with HTC to develop the smartphone, which wouldn't be that surprising considering HTC has been very open to similar collaborations in the past. HTC partnered with Facebook for the 2012 release of the HTC First, which integrated Facebook into the phone's home screen. Unfortunately, the phone didn't do very well.

Amazon's smartphone would likely run on the Fire OS, which is a highly customized version of Google's Android. Having HTC develop the hardware would be a similar approach Google takes with its Nexus line, tapping LG and Asus to create the hardware while it sells the devices under the Google brand.

But bringing the device to market and actually being able to sell it are two very different things.

Cracking the smartphone market
The question some investors may be asking is why Amazon would want to enter a market that basically killed off BlackBerry and has even caused Microsoft to stumble.

Amazon noticed early on that consumers use their mobile devices to buy products and services, so the retailer introduced the Kindle Fire lines to sell its products to customers. The next step is to make it easier for people to buy Amazon products by putting a smartphone in their hands.

It's not unlike Apple's strategy with iTunes, iBooks, iTunes Radio, App Store, Newsstand, etc. All those apps on the iPhone, iPad, and iPod are designed to get users to buy products and services. The flip side to Apple's strategy is that it loves making oodles of revenue from the sale of its devices, while Amazon is content to sell devices at cost or less in order to make money off of what they sell on the device later on.

In terms of smartphone sales, it's hard to imagine Amazon taking significant market share away from Apple. But an Amazon smartphone doesn't have to outsell Apple's iPhones to be successful, it just has to get enough people to buy them and then use them for Amazon purchases. Kindle Fire tablets have the highest amount of Internet usage among Android tablets and come in second place -- albeit a very distant behind the iPad -- in usage. The Kindle Fire makes up 42.5% of Android Web usage, compared to 27.7% for Samsung Galaxy tablets and 7.2% for Google's own Nexus 7 line.

Investors who are waiting for an Amazon smartphone should keep the Kindle Fire's usage numbers in mind. If Amazon can have some of the same success with a phone, it may be able to turn more mobile users into mobile customers. According the the Adyen Global Mobile Payment Index, mobile purchases now account for 17.5% of all digital purchases worldwide, with tablets making up 8% of purchases and smartphones accounting for 9%. With this growing mobile purchasing trend, Amazon is wise to at least consider releasing a smartphone -- now we'll just have to sit back and see if actually happens.

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