Amazon.com Inc. (AMZN, Financial) serves consumers through its retail websites and focus on selection, price and convenience. The company offers programs that enable sellers to sell their products on its website and their own branded websites and to fulfill orders through them, and programs that allow authors, musicians, filmmakers, application developers and others to publish and sell content.
The company designs its websites to enable millions of products to be sold by the company and by third parties across dozens of product categories. Customers access its websites directly and through its mobile websites and apps. It also manufactures and sells Kindle devices.
Entry into the Smartphone Market
Amazon tentatively will introduce its own entry into the smartphone market on June 18. The most interesting thing about Amazon’s rumored smartphone is a feature that will track your eye movement across its screen to create 3D images of the items that capture your attention.
Amazon phone expectedly has front-facing cameras placed at each corner of the screen. These will track your eyes to monitor exactly where they’re looking and adjust the image on-screen to provide a 3D experience without the need for any special glasses.
This 3D effect is the key point of differentiation for the Amazon smartphone which will feature a 4.7 inch screen with a 720p HD resolution; be powered by a Qualcomm (QCOM, Financial) Snapdragon processor; have 2GB of RAM; and four cameras with 640 x 480 resolution. The handset has all the typical connections and buttons you would expect in a modern smartphone, including a top earpiece and possible top power button, side volume buttons, a side SIM tray and a third side button that is likely a mute lock.
The smartphone market is huge — 990 million were sold in 2013– and people are spending more time there. Investors are clamoring for Amazon to boost its thin 0.38% profit margin. Could this new smartphone help Amazon realize that ambition? Odds are good that Amazon will sell the device at cost in order to boost $99 Amazon prime subscriptions that will in turn increase Amazon’s e-commerce revenues.
The smartphone could add $3 billion to Amazon’s revenue and $500 million to its prime subscription revenue. Investors estimate that Amazon has 20 million Prime members — those who pay $99 to get unlimited expedited shipping through 1-Click buying.
Amazon is probably looking at its smartphone as a way to protect its existing customer base as much as it is seeking to gain new customers.
The growing role of m-commerce
E-commerce is now in a fairly mature phase of its existence, though it still represents a small minority of total retail, but mobile commerce is now becoming increasingly important and threatens to absorb an ever greater proportion of e-commerce. Amazon’s pre-eminent position in e-commerce is unassailable in many countries, but its role in m-commerce is a lot less assured. Amazon’s Dash product, which facilitates building a grocery list for Amazon Fresh, is a great example of what’s possible when Amazon goes further than its current role as merely an app on a third-party smartphone.
Imagine what’s possible when Amazon controls the whole smartphone experience: a dedicated app on the homescreen (perhaps even triggered by a hardware button) which launches an app for quickly adding things to your Amazon wish list or cart, via barcode or image capture and OCR. The friction involved in translating a real-world discovery of an appealing product into an Amazon purchase would be greatly reduced. Then imagine integrating the same sort of frictionless purchasing into content consumption experiences such as watching videos, listening to music, or even browsing the web. Products that appear on screen could come with “buy it now” options triggered by the user, products on web pages could be added to the Amazon cart with one click, and so on. It’s easy to think of ways to introduce the friction, but they almost all involve a far greater role than Amazon can currently take on the smartphone through standalone apps alone.
To End
Amazon is a dynamic company with reach into multiple industries. Amazon is clearly the most disruptive force in the retail industry over the last years. Its cost advantages, innovative drive, scale and customer focus have allowed the online retailer to gain participation in different categories in a relatively short period of time. This Seattle-based Fortune 500 company will certainly make headway in the coming years. Amazon is trading near an all-time high following an upbeat holiday shopping season, dominant market position and improving margins. This trend is expected to continue further and it is expected to create greater shareholder returns.
The company continues to grow at almost twice the growth rate of e-commerce, which increased 11% during the holiday quarter. In addition, Amazon disclosed that it now has more than 20 million Prime members. Amazon can generate substantial revenue if the company can convert Amazon Prime trial customers into regular paying customers.
The company is very well-positioned in the long run to grow in multiple sectors. The company is growing at twice the rate of overall e-commerce, and will continue to benefit from its immense scale — that gives consumers broad selection, good pricing and convenience.
