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The plot line to this story is so rich, I had to run an extra mile after reading it. Inside sources say that Amazon.com (Nasdaq: AMZN ) is going to dip its dangerous little toes into the world of smartphones. As if Apple (Nasdaq: AAPL ) didn't have enough to deal with, here comes CEO Jeff Bezos and his "I can accomplish anything I put my mind to" swagger. The Amazon Droid will be the newest in a long line of contenders that are all making Apple fight for something it used to get for free. The question is, how long can the top dog hold out?
In the carefree days of its youth, Apple was the leader in the new-generation phone world. During 2009, it sold 14% of the smartphones purchased. That was a third place to Nokia (NYSE: NOK ) and Research In Motion (Nasdaq: RIMM ) , which both held larger portions of more traditional smartphones -- the kind that are now lovingly referred to as bricks.
Then came 2010, and Nokia and RIM fell a bit as Apple grew its share to 16%. But a strange thing happened in 2010: All of a sudden, Google's (Nasdaq: GOOG ) Android operating system became the dominant operating system on new phones. In the fourth quarter of 2010, the Google OS found its way onto 33% of new phones. Apple actually had to fight to stay relevant.
In 2011, things went nuts. In Q4 that year, Apple was back on top with 24% of the market. But in a turn of events, Samsung, a company that in 2009 had a mere 3% of the market, was in second place with 23% of Q4 sales. In one quarter last year, Samsung sold more than six times the number of smartphones it had moved in all of 2009.
The current story
In the most recent tally, Samsung jumped to the fore, taking 29% of the market compared with Apple's 24%. RIM and Nokia have both fallen under 10%, and no one else even looks capable of making a move. Except now, we're looking at Amazon.
Amazon is similar to Apple in an important way -- both companies make technology prophets look stupid. Time magazine said Amazon would fail with the Kindle, as did The Times of London, as did The Wall Street Journal. That's not a laundry list of hack writers; those are people who got caught off guard by how devoted Bezos was to making the Kindle work. If he puts that same passion into building a phone, then Apple should be very, very scared.
Of course, none of this means Apple is a bad business or even a bad investment. Time and time again, the company has managed to turn failure on its head. Apple has an incredible ability to create products that people didn't know they wanted. The problem is that the window of exclusivity is shrinking. If Apple is planning on repeating history, it needs to find the new hot thing sooner rather than later. When the market is full of tablets from Samsung, Google, and Amazon, Apple is going to have to provide a new product that doesn't just one-up the existing lines but redefines interaction. It succeeded in doing just that with the iPhone and the iPad, but I'm worried that all Apple's cards are on the table.
The bottom line
It seems there are three interesting way to play this. The riskier play is to buy into Apple's history of reinventing the game. That means getting into the stock now and hoping that the Amazon phone and the myriad of tablets all fail to hurt Apple. That gives it enough time to come up with the new hot product that dominates 2013. Stock skyrockets; everyone buys a yacht.
The more conservative play is to hold off until the end of the year to buy in. Apple needs to have made its intentions clear by Q4, if you like what's on offer, you buy in, and if not, you don't. I think my favorite way is the third option. I think Amazon is actually going to do well. Instead of getting on the Apple gravy train, I'd rather jump on the Amazon train.
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