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Why Amazon's Fire Phone May Fail

June 22, 2014 | About:

At an event on June 18, Amazon.com's (NASDAQ:AMZN) legendary CEO Jeff Bezos announced the oft-rumored but heretofore vaporware smartphone known simply as the Fire Phone. Quite possibly the most surprising thing about this smartphone isn't the fact that it's basically a device whose primary purpose in life is to get you to buy things from Amazon.com, or even the "3D effect" teased in early videos. No, the big surprise is that the phone will cost $199 for the entry-level model with a two-year contract on AT&T.

Midrange phone, premium price?
The Fire Phone packs a Qualcomm Snapdragon 800 (not the recently released 801 or 805), a 4.7-inch 1280x720 display, 2 gigabytes of memory, 802.11ac Wi-Fi, and all of the goodies that you'd expect from a phone at the upper end of "mid-range."

The problem with this pricing, of course, is that for that same $199 with a two-year contract, one could go buy an Apple iPhone 5s and enjoy the richness of the Apple software ecosystem, or the outright spec-fest that is a Samsung Galaxy S5 (which has access to the full suite of apps on the Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Play store, unlike Amazon's proprietary build of Google's Android).

But what about all of those nifty, unique features?
The Amazon Fire Phone does offer a number of features that your typical "mid-range" or -- heck -- even a high end phone doesn't have. For example, the pseudo-3D "dynamic perspective" feature that tracks the user's head in order to allow the image to "shift" based on the angle at which the user is viewing the phone.

Further, this device includes Amazon's Mayday tech support as well as Firefly, which can detect via the camera books, movies, games, food, and a bunch more. Indeed, not only will itdetect these items for you, but it'll actually make buying these items from Amazon.comextremely easy.

The strategic benefit is obvious, but the pricing is still puzzling
This phone actually has quite a bit of strategic merit for Amazon. The phone comes packed with a 12-month subscription to Amazon Prime (which, as Bezos was so keen to point out, has very high retention rates) and -- as previously noted -- makes it really easy to buy things from Amazon. Fast, cheap shipping, tons of video/music streaming, and device that makes buyingeven more things sounds like a wonderful idea!

Unfortunately, the pricing is just too high. While a Kindle Fire tablet can often be justified because such a device isn't as personalized (i.e., the whole family can share it) and quite disposable (cheap with no contract), a phone is different. Usually, this is the device people use most and for most people, the phone they choose is the one that they're stuck with for the next two years.

How many people will want to buy a midrange phone with relatively limited app support (relative to full Google Play and iOS) to keep as their daily drivers for the next two years just because it has a "neat" depth effect and makes buying other things easier?

If the Fire Phone were inexpensive without a contract, then it could definitely have had a shot at being a commercial success, particularly as competition for many of the low-end/mid-range Android devices. But as a phone designed to go up against established flagship devices in a high-end smartphone market that is already showing signs of saturation, the odds are really stacked against Amazon's Fire Phone -- cool as it may be.

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