Amazon Smartphone Faces Long-Distance Odds

Amazon has long been rumored to be launching a smartphone, and it now appears it will do so in the second half of 2014. The e-commerce giant plans to announce the phone by July and start shipping units by the end of September, according to a Wall Street Journal report Friday, citing anonymous sources.

In a novel twist, the device will come equipped with a screen than can display seemingly 3-D images without requiring special glasses. Such a feature might help set an Amazon phone apart from a crowded field dominated by Android-powered Samsung phones and the iPhone, along with a growing proportion of cheaper Android devices from China-based manufacturers like ZTE.

Amazon itself has declined to comment on fresh rumors of a smartphone rollout this year. But given its entrance into the hardware business with the Kindle tablet line WHEN, and the launch of the Amazon Fire TV set-top box just this month, the addition of a smartphone to its product line doesn't come as a huge surprise. Not to mention the rumors in prior years.

Still, lots of questions remain about the pricing and design of the smartphone or which carrier -- or carriers -- Amazon is working with. And while the company has built the Kindle Fire tablet and Fire TV using its own version of Android, it’s not yet clear what mobile operating system Amazon would use for the phone.

While tablets like the Kindle Fire are typically sold as stand-alone devices, smartphones in the U.S. are typically sold through carrier partners, with two-year contracts and different types of plans. That means Amazon’s strategy of offering high-spec devices at cost may not be as effective in the smartphone market, according to Avi Greengart, research director for consumer platforms & devices at Current Analysis.

“In subsidized markets like the U.S., consumers don't necessarily know how much their phones actually cost, so offering a better value can get lost,” he said. Even so, he noted that U.S. carriers now more commonly offer prepaid and bring-your-own-device (BYOD) plans. Advances in chipsets also make it easier to build phones that work across multiple carriers.

But if Amazon's broader strategy has been to use hardware as a way to sell more physical and digital goods through Amazon.com, then a smartphone won't necessarily serve as a sales machine. Study after study has shown that when it comes to m-commerce, consumers much prefer tablets to smartphones.

A new eMarketer forecast last week estimated that two-thirds of U.S. m-commerce sales this year will come from tablets, even though it forecasts smartphone penetration will exceed that for tablets by 80% to 64%. To the extent that Kindle Fire owners are buying things from Amazon, the rate of sales per user probably won't be as high on a comparable smartphone.

Greengart suggests this is the reason that Amazon may have held off releasing a smartphone in the past. But he says two factors now could work in its favor. One is the trend toward larger phone screens that blur the line between smartphones and tablets. “Phablets are a real category today, and if Amazon is building a phone, I would expect it to have the largest screen consumers will accept,” he said.

Second, and more intriguing, is the possibility that Amazon could use its Mayday button for more than just tech support on a prospective smartphone.

“Imagine a personal shopper in your phone,” said Greengart, suggesting that Amazon could potentially modify Mayday for smartphones so people could use the support service to assist with purchasing items and have them shipped overnight.

If nothing else, it sounds like it would give Siri and Microsoft’s Cortana a run for their money. Speculation aside, Amazon would definitely face an uphill challenge getting into a mature smartphone market, and then having people use its devices to buy more stuff from its online retail store. As it is, Amazon had less than 8% of the tablet market at the end of 2013, down from almost 10% a year earlier.

The company already knows how difficult it is to take on Samsung and Apple in the hardware business. 

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