Amazon.com’s New Smartphone Might Not Play Out Like the Kindle Fire

Speculations abound about the new smartphone from online retail giant Amazon.com (NASDAQ: AMZN  ) , expected to launch on June 18, 2014. Some see it as a potential threat to Apple's (NASDAQ: AAPL  ) iPhone, while others draw a corollary from the less-than-ringing success of Kindle Fire as a sign that the smartphone won't go very far, either.

However, drawing comparisons between tablets and smartphones is fundamentally flawed, as the market dynamics for the two mobile devices are very different.

First-mover advantage
The concept of the tablet has been around for more than two decades, but failed to take off earlier as a consumer product, primarily because early tablets were too heavy and cumbersome to be comfortably held in the palm. Apple's iPad was a revolutionary tablet, the first to gain wide acceptance by consumers.

Looking at the current market shares of the largest tablet vendors, a strong correlation exists between the date of release and the respective tablet market share. The early launchers (Apple and Samsung) enjoy a considerably bigger share of the market compared to the late comers (Amazon.com and Microsoft). Android has been steadily eating away at Apple's tablet share, simply because it has more device models that help it to exploit a wider range of price points. But, Apple still remains the largest tablet vendor.

Apple had an 83% media tablet market share in 2011, but just 32.5% in the first quarter of the current fiscal year.

Vendor

1Q14 Unit Shipments

1Q14 Market Share

1Q13 Unit Shipments

1Q13 Market Share

Year-over-Year Growth

Apple

16.4

32.5%

19.5

40.2%

(16.1%)

Samsung

11.2

22.3%

8.5

17.5%

32%

ASUS

2.5

5%

2.6

5.4%

(2.8%)

Lenovo

2.1

4.1%

0.6

1.3%

224.3%

Amazon.com

1.0

1.9%

1.8

3.7%

(47.1%)

Source: IDC Worldwide Quarterly Tablet Tracker (April, 2014)

The iPad enjoyed a virtual monopoly in the market for close to one-and-a-half years, during which it became the de facto standard by which every other tablet was later measured. However, it would be unfair to say that Apple and Samsung are simply enjoying first-mover advantage. Having a great product has undoubtedly been helpful, too.

Amazon.com's Kindle Fire might be a good product, but it came to the market too late, when early leaders had already set the tempo, which explains its under-performance. The same holds true for the Surface Tablet; as Microsoft must have learned by now, having brilliant people who can whiteboard solutions to complex algorithm problems does not always translate to success.

Market saturation
Another very important reason why tablets and smartphones are not in the same league relates to their potential markets. Tablet sales are already showing signs of a decline, with global sales falling 5% in the first quarter of 2014. Longer tablet ownership cycles, and the popularity of phablets, are to blame for this trend.

The market for tablets is much smaller than that for smartphones. According to Gartner, seven smartphones will be sold for each tablet sold this year.

Developed markets are close to hitting a saturation point as far as smartphone and tablet sales are concerned. Growth will, therefore, mainly come from emerging markets. This is great news for Amazon.com's new smartphone, since it will likely be Android-based, and Android smartphones already dominate emerging markets. Moreover, Amazon.com has shown a willingness to sell its hardware at a small loss, as it did with the Kindle Fire, to gain traction.

The concept of first-mover advantage is less apparent when it comes to smartphones, as Windows Phone, the latest entrant into the smartphone market, has succeeded in gaining meaningful traction since its launch, and is growing its share at the fastest pace among all mobile operating systems.

The fact that Amazon.com's smartphone is late to the game might, therefore, not be a major deterrent to its growth.

Foolish bottom line
The fact that Amazon.com's tablet sales have remained sub-par does not automatically mean that the same will happen with its new smartphone. The market dynamics for smartphones are quite different from those of tablets. The features of the new smartphone, and its price points, are likely to play a bigger role in determining whether the new phone becomes successful or not.

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