Here's Why Apple Ought to Fear Amazon.com

Amazon is set to launch a smartphone, putting it on a collision course with Apple.

Jun 18, 2014 at 10:15AM
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As we begin the concluding day of the Federal Reserve's June monetary policy meeting and wait for the standard 2 p.m. statement, U.S. stocks are essentially flat in early trading, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES:^DJI) up 0.06% and down 0.07%, respectively, at 10:15 a.m. EDT. In company-specific news, e-tail-to-devices juggernaut Amazon.com (NASDAQ:AMZN) is set to present its first smartphone in a special event in Seattle today, raising the stakes in its battle for consumers' attention with Apple (NASDAQ:AAPL).

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Few CEOs have the vision and ambition of Amazon's Jeff Bezos, and it appears we will witness more evidence of that today. Perhaps emboldened by the success of the Kindle Fire tablet, the company is extending its push into mobile devices. According to reports, AT&T (NYSE:T) will be the exclusive carrier for Amazon's new smartphone in the U.S.; no deal has been struck yet in the U.K., but Amazon has spoken to O2 and Vodafone.

I alluded to Amazon's handset launch yesterday, but I didn't do a good job of highlighting the significance of the event. Amazon is not selling phones to enable people to call their friends and family, but rather to plug users into its buying platform, particularly for music and video content. As the market for handsets has become increasingly mature and users are upgrading less frequently (this is the case in developed markets, mainly), the value of the smartphone as a platform rather than simply an electronic device is coming to the fore.

As an example, consider Apple's Worldwide Developers Conference at the beginning of this month: Apple introduced no new kit; instead, the focus was the new iOS 8 iPhone/iPod operating system and new services, including health-related applications.

Sam Hall, an Amazon mobile executive, said in an interview a few years ago, "We're trying to remove the barrier between 'I want that' and 'I have it.'" I think that quote neatly summarizes the rationale behind an Amazon smartphone. As phones become consumers' handheld, virtual shopping mall, Amazon -- the first Web-based superstore -- doesn't want to risk losing business to anybody else by giving up that access point.

As I have written before, I am continually amazed by Amazon and its relentless drive to facilitate e-commerce (disclaimer: I'm a loyal customer/Prime member). The smartphone market is a tough nut to crack for an ordinary electronics company, with Apple and Samsung taking home virtually all of the profits globally. However, Amazon is a different animal in that it does not need to make a profit on its handset -- that is incidental to its mission to get people to buy more things.

Beyond the smartphone: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Apple. The Motley Fool owns shares of Amazon.com and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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