The Surprise Losers in Amazon's Smartphone Announcement

Amazon (NASDAQ: AMZN  ) put months of speculation to rest today, announcing its newest entry into the smartphone market, the Fire Phone. The company wasted no time in taking shots at its new rivals, including the iPhone. The new phone will be released exclusively on AT&T's (NYSE: T  ) network, the same network that originally had the exclusive on Apple's iPhone. Amazon hopes a similar start will lead to similar success, but the company has a long way to go before it can rival Apple and other industry leaders like Samsung.

Apple and Samsung would be wise to pay attention to Amazon's big move into the smartphone market, but they are most likely not quaking in their boots. Kindle, Amazon's tablet, has less than a 10% market share in a business space that's dominated by Apple and Samsung. Though it will be worth watching long term, it seems unlikely that Amazon will carve out a very large market share early on.

Still, the release of the Fire Phone will have some immediate consequences, some of which are likely to change the game for a number of other industries. In fact, the biggest losers coming out of today's announcements may actually be the same big box stores that Amazon has always haunted in the past.

The reason for that is a new application that Amazon is promising to include on the Fire Phone. Called "Firefly," the app will allow users to scan virtually anything, from a physical object to a song on the radio. Amazon's app will then deliver the user directly to a relevant product page on the company's website. Snap a picture of your friend's new shirt, and you can get one just like it, or in the nightmares of big box stores, use the app to comparison shop in the middle of Best Buy or Target.

In Amazon's vision, the app can turn the whole world into a supermarket checkout aisle, where everything within reach is a potential impulse purchase. If the company is right, the results could be huge for Amazon, and devastating to brick-and-mortar business that already feel like showrooms for Amazon. Shoppers will no longer have to wait until they get home to search for an item, nor will they have to put in the effort of typing on smartphone keyboards to find it. If the app works as expected, only a few simple screen taps will be needed.

Having a store in the palm of your hand is nothing new -- with any smartphone browser and a traditional retailer's website, it's been possible for years. In fact, Amazon had a small rollout (by invitation only) of a stand-alone device called Amazon Dash, which would add items to your account's shopping list when users scanned barcodes or spoke the name of the product. But, Amazon's new way of streamlining the purchase process is nothing short of revolutionary.

It won't take a massive market share for the new Fire Phone to pay off in a big way, provided users buy enough items on Amazon with the Firefly app. If the functionality is as good as promised, that may be a safe bet, one that Amazon seems to be making itself. Jeff Bezos, Amazon's CEO, described the new phone as being targeted at Amazon's "most engaged customers." Getting dedicated Amazon customers to purchase even more often, and on impulse, seems to be a key part of the Fire Phone strategy. It's a clever way to hedge, and it may well pay off.

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