Why Samsung Is Rooting for Amazon's Fire Phone...and Google Hopes It Fails

It's all about the ecosystem!

Jun 25, 2014 at 1:30PM

Amazon.com (NASDAQ:AMZN) announced the Fire Phone last week. By now, you've probably heard all about it -- the specs, Firefly, and Dynamic Perspective. What most people aren't focusing on, however, is the OS. The Fire Phone runs a similar OS to Amazon's tablets -- Fire OS -- a forked version of Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Android.

Samsung (NASDAQOTH:SSNLF) is contemplating moving away from Android with its own Android fork, Tizen. Amazon is providing the company, a significantly larger smartphone and tablet manufacturer, a nice market test in the U.S.

If Amazon's Fire Phone sells well, Samsung may accelerate its transition to Tizen.

Amazon's free sample
Amazon has already had a lot of success with Fire OS. During the holiday season last year, Amazon's Kindle Fire tablets accounted for 8% of the market.

It's not so clear that Amazon will be able to take a similar share of the market with the Fire Phone. That doesn't mean its first attempt to break into the smartphone market won't provide valuable information for both Amazon and Samsung.

There are a few things holding Fire Phone sales back. The first is its price. Amazon captured a large part of the tablet market by offering a mid-to-high-end device near cost, undercutting the prices of competitors. The Fire Phone is priced about the same as Samsung's Galaxy S5.

Amazon comes up against subsidized smartphone pricing, which makes even $400 phones free on most carriers in the United States. Amazon isn't going after people that take the free phone, though. They're going after people that spend money, so pricing it at cost makes no sense strategically for Amazon.

At the same time, Amazon is limiting itself to AT&T subscribers. Indeed, the way Amazon is positioning the Fire Phone looks like it's just testing the waters. Compared to Samsung's phones, which are available on all four major carriers in the U.S. and in over 125 countries, the Fire Phone doesn't represent much of a threat to sales.

Samsung's position as the largest smartphone vendor in the world is likely to remain unchanged, even if the Fire Phone is a smashing success.

Samsung can't get rid of Google
Samsung is stuck with Google. Although Android is open source, in order to use Google's apps and APIs like Maps and the Play Store, a smartphone OEM must abide by Google's rules.

Samsung agreed to terms with Google earlier this year to cross-license patents. Among the terms was an agreement that Samsung would tone down its TouchWiz UI, and feature Google's apps more prominently. This might have thrown a wrench in Samsung's plans to ditch Android for Tizen, using TouchWiz to mask the transition.

Samsung is still hard at work on Tizen, and it plans to release a high-end Tizen phone in Russia this quarter. Still, Samsung seems to be a long way from launching Tizen in the U.S.

How Fire OS can change the game
If Amazon can show even a modicum of success with the Fire Phone, it gives Samsung a benchmark for what it needs with Tizen in order to succeed. Fire Phone doesn't have Google maps (it uses Nokia's HERE maps). Nor does it support Google's Play Store. Amazon's app store currently has 240,000 apps. Comparatively, the Play Store has 1.5 million apps.

App support is likely the biggest limiting factor for Tizen and Fire. Amazon's sales will show Samsung if 240,000 apps is enough to support sales of the device in the U.S. Samsung is offering hefty incentives for developers to port Android apps to Tizen, but its portfolio of apps remains relatively minuscule.

If Amazon succeeds with just one-sixth the apps of Google Play and no Google Maps API, Samsung should be able to succeed just the same considering it's already immensely popular in the smartphone market.

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!

Adam Levy owns shares of Amazon.com. The Motley Fool recommends Amazon.com and Google (C shares). The Motley Fool owns shares of Amazon.com 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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