On June 18, 2014, Amazon introduced its latest tech device, the Fire Smartphone, potentially interrupting the device industry for the second time after entering the tablet market in 2011. The big question is: will it be successful, especially given a saturated smartphone market? Several signs point to yes: Amazon’s track record in launching a device (the Kindle Fire tablet), its performance as an online retailer for Wireless devices and services, and the offer & functionality that comes with the Fire Smartphone.
First, Amazon has a positive track record in launching a device to a mature market. Back in April 2010, Apple launched the iPad, and a few months later, Samsung came to market with its Galaxy Tab. By the end of 2010, Apple had sold over 15 million iPads, and Samsung had sold more than a million. By the time Amazon came to market with its Kindle Fire tablet in November of 2011, Samsung had already released 5 models of its Galaxy tablets and Apple had released two iPad models.
Two years later, and the Kindle Fire tablets are still generating significant interest at Amazon, with more shoppers showing interest in Kindle tablets than iPads.
Another supporting factor for Amazon is its place and performance in the Wireless industry. In July of 2009, Amazon launched AmazonWireless and began selling wireless services from providers such as AT&T, Sprint, and Verizon, in addition to wireless devices and accessories. In terms of success, Amazon’s wireless marketplace converts traffic at a higher rate than wireless carrier websites. From May 2013 to May 2014, Amazon saw a 3.2% Order Conversion Rate (on average), compared to 2.3% among the Big 4 Wireless Carriers (AT&T, Sprint, T-Mobile, and Verizon Wireless). All of this is supported by the fact that Amazon is able to compete primarily based on its size and reach – in the same time period as above, Amazon averaged over 2x the monthly UVs as Walmart, and 1.5x the monthly UVs as eBay and the combined UVs of the Big 4 Wireless Carriers. In fact, in the first two weeks following the announcement of the Fire phone, Amazon had nearly 90% of consumer interest at their site, with only a small portion visiting the product detail page at wireless partner AT&T.
Finally, the functionality and resources contained in the device, as well as the offer that comes with it, will certainly help to drive engagement. The device itself looks similar to an iPhone, but contains some additional features that Amazon hopes will differentiate its smartphone from the crowd, such as Firefly, an identification tool that can distinguish and pull information on millions of products and services, and MayDay, a video chat service for Amazon customers.
In addition to these bells and whistles, Amazon launched the phone with an enticing offer: a 32GB phone (double the standard 16GB), with a year of Amazon Prime membership included ($ 99 value) for $ 199. Remove the cost of the Prime membership, and this device is $ 100 for double the storage of its counterparts – which is rather impressive!
And while selling devices is great for Amazon, it isn’t the driving force behind entering the marketplace. In fact, Amazon CEO Jeff Bezos stated at a 2012 Kindle Launch Event, “We want to make money when people use our devices, not when they buy our devices.” Enter Amazon Prime, a subscription service that allows users significantly discounted shipping costs on many of the products on Amazon, while also giving access to free streaming content through Amazon Instant Video.
Take the following as context: in a recent survey from Statista, Amazon Prime members heavily outspent non-Prime members in the last 90 days, with 39% of Prime Members spending more than $ 200, compared to 13% of Non-Prime Customers. The implication here is that driving Prime Membership helps to drive increased expenditures with Amazon, so including those perks to purchasers of the Fire phone likely means those customers will continue to purchase from Amazon.
Will all of this translate to success in the smartphone world? One potentially huge problem for consumers is that switching to the Fire Phone means losing access to any applications previously purchased through either the Apple Store or Android Marketplace (Amazon’s phone runs its own version of Android, just like the Amazon Fire tablet). If initial sales are soft, perhaps Amazon should consider an offer of credits on the Amazon Android store to alleviate this pain point for consumers.
Even so, given Amazon’s strength as the leading online retail destination, and its ability to package and sell devices and a plethora of content to support them, it’s likely the Fire phone will find its niche.