’s Fire Phone Will Be Branded a Failure: Here’s Why That’s Wrong

Amazon's not looking at bolstering its bottom line by selling a phone; it wants to redefine the shopping experience.

Jun 19, 2014 at 9:10AM

Source: CNN Money/Ted S. Warren AP

Yesterday, Amazon (NASDAQ:AMZN) CEO Jeff Bezos debuted the company's first smartphone: the Fire Phone. And while the media covered this with the pomp and circumstance befitting a Jeff Bezos event -- and let's face it, he's earned this adoration -- the media will be equally robust when reporting Amazon's "failure" after the phone fails to quickly catch on. But as insightful investors, we know better -- here's why the media will be wrong.

This is a tough market
Before we discuss why the media will be wrong, let's discuss why they'll come to this conclusion. The premium smartphone market is a tough market to crack. It requires both top-notch hardware and a sticky ecosystem chock-full of third-party apps. The only company that's been able to do this well is Apple (NASDAQ:AAPL). Its high-end competitor, Samsung (NASDAQOTH:SSNLF), partnered its hardware with Google's Android ecosystem to compete.

And those are the only companies that are doing well in the smartphone market, a recent study shows how stark this is. Of the $125 billion in smartphone net operating profits over the last six years, Apple and Samsung combined to take nearly 90% of them. According to the last comScore US smartphone subscriber market share survey, Apple and Samsung have a combined 68.3% of the market; no other OEM has over 7% of the US market. So, suffice to say, Amazon appears to be up against two skilled competitors with deeper pockets -- Amazon really is a day late and a dollar short here.

So eventually when reports trickle in that Amazon isn't putting a dent in Apple and Samsung's massive profits, the media will be quick to declare Amazon's efforts a failure.

Here's why they will be wrong
The media needs to have winners and losers; it is a patronizing quality that assumes results are in black and white and readers are "too simple" to understand nuance. But investors should know better. They should be looking for companies working toward establishing and bolstering their competitive advantages -- and that's what Amazon is doing. While it is true that Amazon has its fingers in many pies, Amazon is -- and will continue to be -- a retail-oriented company.

And that's where Amazon's Fire Phone should be judged. A recent study shows the phone's true potential -- it is reported that Kindle tablet users on average spend 55% more every year with Amazon than Amazon shoppers without the device. So the strategy isn't moving more hardware units than Apple or Samsung, it is to disrupt the market by presenting it with a new cost/benefit equation.

What if they massively succeed -- like the Kindle?
Of course, there is an outside chance Amazon massively succeeds. Hey, the Kindle device is considered a massive success, so lightening can strike twice. Personally, I feel that won't happen here due to the underlying economics differing with phones. The Kindle competes on price rather than on specs or its forked (read: limited) Android ecosystem. This advantage will be blunted by the market-distorting subsidies that exist in the cell phone market where the majority of phones are purchased on contract. Matter of fact, the initial price of the entry level model appears to be the same on contract as Apple's 5s, although Amazon's phone comes with more storage and a free year of Amazon Prime.

But if it is a runaway success, it will be more destructive to Apple than Samsung. Apple's revenue and earnings are tied to the success of its iPhone line. In its recent filed second quarter, Apple reported 57% of its revenue from the iPhone. Samsung is more diversified with its product mix and doesn't depend upon one product. But both of these companies are dependent on the actual hardware to bolster their bottom-line figures whereas Amazon is more interested in the phone being an on-demand shopping portal of sorts.

Foolish final thoughts
For Foolish long-term investors, it is important to understand the reasons behind your investment's corporate decisions. Right now, Jeff Bezos has created a better shopping experience and fired a shot across the bow of Apple and Samsung. Even if the Fire Phone fails to garner double-digit market share, it will redefine the shopping experience for those who own it. Not only that, the company will continue to reward long-term investors; even after becoming David Gardner's first 100-bagger, Bezos and Amazon continue to revolutionize the shopping experience.

Apple's not resting on their laurels: Here's their next big thing!
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!

Jamal Carnette has no position in any stocks mentioned. The Motley Fool recommends and Apple. The Motley Fool owns shares of 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers