Does the Amazon Fire Phone Pose a Threat to Apple and Samsung?

Amazon's entry into the smartphone space has recently been unveiled. Is the Fire Phone a market disruptor?

Jun 22, 2014 at 2:13PM

Speculation has long swirled that Internet giant Amazon (NASDAQ:AMZN) would introduce its own take on the smartphone. The company has shown an interest in a growing hardware presence, with the successful Kindle e-reader followed up by Kindle Fire tablets and the Fire TV set-top box, so the development of a mobile phone was expected. Now, Amazon's long-awaited entry into the cellular market has been unveiled.

Dubbed "Fire Phone," Amazon's latest hardware project will arrive with a suite of features that could do great things for Amazon's business. On the other hand, there are notable points of weakness for the device. What does the Fire Phone mean for Amazon and its competitors Samsung (NASDAQOTH:SSNLF) and Apple (NASDAQ:AAPL)?

The Fire Phone offers high-end features and price
Early predictions suggesting Amazon's entry into the phone business would come by way of a trimmed down, low-cost device have proven incorrect. The Fire Phone will be available July 25 through AT&T at a price of $199 with a two-year contract, placing it squarely in the range of similar products from Apple and Samsung. The new phone makes use of a custom version of Google's Android operating system called Fire OS. It also features a 3D display reminiscent of what Nintendo used in its 3DS handheld.

Firefly could be revolutionary and very lucrative
One of the most interesting features of Amazon's new phone is an audio, text, and image recognition suite app called "Firefly." Fire Phones will have a physical button that opens the Firefly app, enabling users to identify phone numbers, bar codes, media, and various products. By pointing the Fire Phone at a given object or piece of media, users will often have the ability to redirect to Amazon's marketplace to purchase it. The phone is said to recognize more than 100 million items. The obvious goal here is to create a healthy user base for a phone that funnels users toward purchases, downloads, and content streaming.

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Cloud storage and customer support
Making good use of the company's cloud infrastructure, the Fire Phone will also save every picture taken by users to online storage. This feature could help Amazon develop its own social photograph sharing network akin to Instagram or Flickr. The phone features an impressive 13 megapixel camera, making automatic cloud storage for high resolution images a laudable feature. The Fire Phone will also connect users to Amazon's highly regarded customer service through a suite called "Mayday."

Does the Fire Phone have mass appeal?
While the Fire Phone has an array of interesting features, there are still reasons to be skeptical about the device. The extent to which the phone revolves around attempts to direct users to other elements of Amazon's business could be alienating. The company isn't just selling a phone, it's selling a device that aggressively acts as a funnel to its broader ecosystem, as evidenced by the Firefly feature and the 1-year Prime subscription that comes with each Fire Phone. Expecting consumers to buy a phone specifically tailored to facilitate the purchase of other products is a questionable proposition, particularly when users of the iPhone and Android devices already have access to most of Amazon's offerings.

Amazon's Fire Phone is up against strong competition from Apple and Samsung, two companies that account for 70% of U.S. cell phone sales. The fact that it's a new entrant debuting at price parity with market-leading products is already concerning, but it's also worth pointing out that older models of Samsung and Apple phones can be purchased at prices substantially cheaper than Amazon's offering. Adoption of the device will also be limited by its current status as an AT&T exclusive.

App Store weakness
Amazon is also facing challenges on the App Store front. The Fire Phone uses a modified version of Google's Android operating system, but users of the upcoming device will not have access to the same selection of apps. Amazon's store currently has about 240,000 apps, while Google and Apple's respective stores feature somewhere in the neighborhood of 1.2 million. Another weakness in the Fire Phone's current offering is the lack of a proprietary mapping software, a deficiency Amazon will likely want to remedy.

Foolish thoughts
Jeff Bezos and Co. are putting forth a product that offers good value to consumers who have been contemplating a Prime membership or are already big fans of the service. On the other hand, the phone doesn't seem to offer a whole lot to entice consumers who are not particularly attached to Amazon's ecosystem. The Fire Phone is an interesting foray into the world of mobile phones, but the product will need to be developed further before it poses a substantial risk to Apple and Samsung.

Leaked: 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!

Keith Noonan has no position in any stocks mentioned. The Motley Fool recommends, Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of, Apple, Google (A shares), and Google (C shares). 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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