Business decisions are not always accurate and they are not even meant to be because it is not possible to gauge the outcome of any business choice. Well, Amazon (AMZN, Financial) is caught in a considerably difficult situation because of its decision to enter the smartphone arena under the Fire phone brand. Now, the management of the company has entered into a damage control mode after various reports confirmed the miserable failure of the Fire phone against bigtime smartphone players including Apple (AAPL, Financial) and Samsung (SSNLF, Financial).
In the first week of September, Amazon took a drastic step in order to avert a catastrophe by announcing that it would charge 99 cents only for the Fire phone, if the users agreed to sign a two-year contract with AT&TÂ (T, Financial), the exclusive carrier. This heavy price cut brings Fire closer to the company’s traditional model of giving away the hardware at dirt-cheap prices in the expectation that users will order enough from Amazon to make it worthwhile. Whether, this move will work in favour of Amazon and make this project somewhat viable is yet to be seen.
About the Fire phone
The company launched the Fire phone at a mega event in the month of July at an affordable price of $199. Amazon attempted to pack the phone with most necessary features including a stunning 3D display feature called Dynamic Perspective. The phone was designed to be great for video, music and reading at a price that could challenge low-priced smartphone makers. However, the immediate and drastic price reduction may confirm the already existing speculation that the Amazon Fire campaign has already degenerated into an outright bust.
Though most of the readers have reasonable knowledge about the specifications of Fire phone, I would like to take a few moments to discuss a couple of its features that made Fire look like a promising deal. For its part, Amazon initially pitched the benefits of Firefly and Dynamic Perspective technologies for its Fire phone. As per the company, Firefly is capable of recognizing 100 million separate movies, songs, television shows and consumer goods. Meanwhile, Dynamic Perspective offers rotating and three-dimensional sightlines of localized scenery, with the help of multiple cameras and infrared LEDs. Now, there is hardly any doubt that these features sound quite flowery and added to the phone’s charm, yet these features were shunned and passed by analysts and customers as “gimmicks.” A good number of tech analysts branded the phone as an unreasonable buy because these add-ons were nothing but superficial.
What caused the trouble?
It is clear to us that Amazon did not really innovate on the significant aspects of its smartphone but focused more on superficial features and asked a hefty price for it. The strategy was flawed at its very core because the company was in a space where it was hustling against giants like Apple and Samsung, trying to convince users to shift to their product while providing no actual incremental value. According to an estimate by Charles Arthur, technology editor at The Guardian, the world's largest online retailer sold fewer than 35,000 of its new smartphones in the first 20 days it was on the market.
To put that in perspective: Apple sold 9 million iPhone 5C and 5S devices within three days of the phone's release last September. It's not an entirely fair comparison because iPhones are the most popular smartphone in the world and are available in more stores, in more countries and on more carriers. However, we also have to consider the fact that Amazon itself has around 132,600 employees and therefore, 35,000 is quite a low number. However, the road ahead looks all the more difficult as competitors are continuously unveiling new products.
The future is tougher
Earlier this month, Apple unveiled its iPhone 6 and iPhone 6 Plus handsets at a launch event in Cupertino. The iPhone 6 Plus screen measures out at 5.5 inches, diagonally, and this design aligns nicely with the current trend of shifting to larger phones and phablets. The iPhone 6 Plus, of course, would compete directly against the Samsung Galaxy Note 4 into and beyond the looming 2014 Holiday Season. Online magazines including Pocket Lint, Tech Radar and Huffington Post each identified the Samsung Galaxy Note 3 as the best phablet out on the market heading into 2014. Therefore, it is clear that the future will not hold as good for Amazon because of the ongoing march of new handsets and entry of players like Xiaomi and Lenovo,Ă‚ who are already challenging the likes of Samsung.
Takeaway
In a way, Amazon’s miserable failure with the Fire phone inevitably reminds me of Microsoft’s (MSFT, Financial)Â failure with the Surface tablet. In the last year, Microsoft had to write down a whopping $900 million in inventory charge on its Surface tablets as it turned out to be an economic disaster. In a bid to participate in the smartphone trend and better its revenue and profit growth, Microsoft hurriedly ventured into the space with not much to offer to the customers. Now, Amazon is also walking on similar lines and as such, it would not be unfair to expect a major write-down soon on the Fire phone.
In such circumstances, it is only prudent for the investors to stay away from making a position in the stock. In all probability, Amazon will encounter a volatile run on the exchange on further news of the Fire phone and hence, it is better for investors to wait and watch the stock movements over the next few weeks.
