There's No Room for Amazon.com in the Smartphone Market

It looks like I'm not alone in thinking that Amazon.com's (Nasdaq: AMZN  ) rumored smartphone will fail. R.W. Baird analyst Colin Sebastian also thinks the prospective device is a bad idea. First off, I'm a committed Amazon shareholder myself, and Sebastian gives Amazon an "outperform" rating and $250 price target, so it's safe to say that we're both still overall bullish on the e-tailer's future.

Part of investing also includes seeing the downsides to stocks you own, which helps add some much-needed perspective to the process. In that vein, I've already outlined why I think a "Kindle Phone" is doomed. With the Kindle Fire already using a heavily modified, or forked, version of Google (Nasdaq: GOOG  ) Android, it's a safe bet that a Kindle Phone would follow in those footsteps.

Let's check out Sebastian's take.

Been there, done that
One reason is that he believes that Google could throw a wrench in Amazon's plans by not making its own native apps or other types of assistance available.

The Kindle Fire actually ran into this same hurdle, but with little impact on its success in the younger tablet market. Amazon hijacked Android for its Kindle Fire and did so without Big G's seal of approval. Normally, without Google's approval, gadget makers lose the native apps and services that most users would expect, such as Gmail, Maps, and Google Play, among others. For the majority of OEMs, this is a death sentence.

In this way, Amazon is a contender of a different breed, though. It has already made its own native apps for email, its Silk cloud-accelerated browser, and, notably, its own Android Appstore. Even more importantly, Amazon was already a market leader in the ecosystem for other types of tablet content, such as e-books and video.

This is how Amazon has already tapped Android for Kindle Fire success. It already had everything it needed, without Google.

It's different this time
There are several key differences between the smartphone and tablet markets, though.

One key piece is a maps app. For a Wi-Fi tablet geared toward media consumption, a maps app is less relevant. For a smartphone, a maps app is now table stakes. Without a native Google maps app, that missing piece is more important.

Well, it just happens that Amazon has bought its own 3-D mapping start-up, UpNext. 3-D mapping is the next big thing, with Google and Apple (Nasdaq: AAPL  ) diving in head-first. This deal just happened, so it'll probably take a while before we see any fruits. On the other hand, it bought speech-recognition start-up Yap last year, presumably for some type of voice assistant to match Siri or Google Now.

These types of first-party apps are much more important than basic email or browsing, and Amazon lags here. People consume different types of content on a tablet than on a smartphone. While Amazon has strength in one (tablets), it falls behind in the other (smartphones).

Seat's taken
There's also a question of maturity. When Amazon launched the Kindle Fire, the tablet market was so young that there weren't many viable alternatives to the iPad. Apple had easily staked a claim as top dog early on, but standard Android tablets had failed to gain meaningful traction, leaving an opening for Amazon to swoop in.

You might remember when Hewlett-Packard (NYSE: HPQ  ) axed its TouchPad and webOS platform almost immediately, which was just a month before the Kindle Fire was unveiled. At the time, Research In Motion (Nasdaq: RIMM  ) had shipped a cumulative total of only 700,000 PlayBooks over two quarters. Just a month after the Kindle Fire's launch, Amazon said it already needed "millions more" than expected.

In tablets, there was a clear No. 1, but No. 2 and below were all up for grabs.

In the mature smartphone market, those ecosystems have already reached critical mass. iOS and Android are unstoppable at this point in terms of both market share and app ecosystems, and remember that Amazon's Android is a different flavor. You can argue who's on top, depending on whether you're looking at market share, profit share, or app availability, but it's a plain fact that iOS and Android together effectively own the market.

Amazon is coming into a mature market with more entrenched rivals that will be harder to unseat. Plus, one of its favorite tricks of price undercutting is neutered, thanks to carrier subsidies that already give away smartphones for free.

There aren't any spots up for grabs here.

Inner conflict
Sebastian's concern over having Google's official support is more valid in the mature smartphone market than in the nascent tablet market. He also points out that on the hardware side, Apple and Samsung are the two dominant leaders, gobbling up more than half of unit sales and more than 80% of profits.

Do I hope that I'm wrong and that Amazon will succeed? As an investor -- of course. Do I think it will? As an analyst -- no. Not by a long shot.

Fortunately, Amazon has a lot else going for it and remains one of three stocks that will help you retire rich. Everyone wants to retire rich, so you might as well grab a copy of this special free report for some tips on how to achieve that mother of all financial goals, including two other picks. It's totally free. Apple's tablet dominance is one reason it has plenty of room to run, and this new report outlines them all. Grab yourself a copy to see what our own top tech analyst has to say about the Mac maker's prospects.

Fool contributor Evan Niu owns shares of Amazon.com and Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Amazon.com, Apple, and Google. Motley Fool newsletter services have recommended buying shares of Amazon.com, Apple, and Google and creating a bull call spread position in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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