Amazon's Fire Phone Fizzles: Here's Why It Doesn't Matter

Source: CNN Money/Ted S. Warren AP

Well, that was quick. A mere month after Amazon.con (NASDAQ: AMZN  ) enthusiastically brought its Fire Phone to market, The Guardian's Charles Arthur speculates that the company has sold no more than 35,000 units. In all, this appears to be a flop for Jeff Bezos and company. And while many analysts predicted that Amazon's Fire Phone would have a tough time in this market, myself included, let's all pump the brakes on writing the device's obituary. Amazon's reason for bringing its Fire Phone to market isn't the same as other hardware manufacturers, and is shouldn't be treated that way.

It appears Amazon's Fire Phone was another "me, too" device
Although Amazon itself doesn't release sales figures, Arthur cross-referenced ad impressions data for the Fire Phone from online ad network Chitka with the total smartphone market from comScore to come to this total.

And it wasn't pretty. For perspective, Apple sold 257 times more iPhones -- 9 million units -- in the first weekend with its last release than Amazon sold the entire first month. For a more modest comparison, Samsung sold 5 million units -- 143 times Amazon's total -- with its S5 Galaxy iteration, and that was widely considered a disappointment for the South Korean giant. And while these are worldwide numbers instead of US numbers --remember Amazon's Fire Phone is only available in the US and Candada, Amazon's estimated 35,000 unit rollout is still a disappointment.

Bezos once said "it would tarnish his brand if we did things in a 'me, too'; kind of way." Essentially, he meant he didn't want to enter a crowded market without a differentiator. But, unfortunately, it appears that the Fire Phone is just that -- a "me, too" device. To be fair, these are only estimates as Mr. Arthur points out, but the data only confirms other analyst views -- Amazon's Fire Phone hasn't put a dent in the market.

The phone itself had many features that were supposed to be differentiators. Most notably, its Firefly technology allows users to instantly recognize goods, music, and film and to add that data to your Amazon wish list or purchase it directly. However, it appears these features aren't enough for consumers to be locked into a two-year contract with $200 upfront.

Most devices are "me, too" devices, but most have a known operating system
While we're writing the obituary on Amazon's Fire Phone, let's include all hardware manufacturers not named Apple or Samsung. Remember that Amazon's Fire Phone is only available in the United States and Canada. The U.S. market is a tough market, with Apple and Samsung having a reported 70% installed base. Outside those two companies, nobody has over 7% of the U.S. market.

The other "substantial" market share holders -- LG, Motorola, and HTC -- do it on the strength of multiple devices to support their flagship units, and most sport Google's Android OS. Compounding things a bit for Amazon is the introduction of its operating system, Fire OS, into a phone line; when it comes to U.S. market share, 90% of the installed base uses Apple's iOS or Google's Android. Fire OS is a forked (read: modified) version of Google's Android system.

Here's the catch, Amazon's Fire Phone was designed to bolster its core business
Motivations are important. And for Amazon, its motivations and corporate strategy could be ascertained from its initially successful Kindle tablet device. A report from Consumer Intelligence Research Partners late last year shed some light on how devices were helping Amazon -- owners of the tablet spent an average of $1,233 per year, over 50% more than Amazon customers without the device.

Bezos has discussed this strategy by stating that "Amazon wants to make money when Kindle owners use their devices to consume media and make purchases, not when they buy the devices in the first place."

And that's just it, Amazon wasn't looking for the Fire Phone to directly contribute to its bottom line in a significant way. Rather, the company was looking to create a new retail channel -- a portable, on-demand shopping portal of sorts. The phone's Firefly technology and the statement from Bezos point to that fact. Amazon wants its Fire Phone to bolster its core business: retail.

Final thoughts
Let's not sugar-coat these results: This could be a tough start for Amazon's Fire Phone. However, it appears Amazon is more concerned with revolutionizing the shopping experience than with acquiring substantive market share. So investors should be more concerned with research on Fire Phone owners' spending habits more than on actual hardware sales.

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Read/Post Comments (11) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 28, 2014, at 12:34 PM, DukeMontrose wrote:

    This old fool believes earnings/profits matter on our capitalistic planet.

    So do losses.

    Having see the inaugural dog + pony show in which the strutting founder of AMZN tried to piggy back on the aura of an Apple luminary = one wonders how much longer shall the the folks be awed by such smoke + mirrors exercise in PR.

    With a billion loss here + another two billion capex there, in far away India = when oh when shall we arrive at the gates of bankruptcy?

    Good investing to all my fellow fools...

  • Report this Comment On August 29, 2014, at 2:57 PM, joryko wrote:

    Well with an Operating Cash Flow of $5 billion yearly and an almost $5 billion net cash balance, the gates of bankruptcy are far, far away.

  • Report this Comment On August 29, 2014, at 4:58 PM, Rayzer wrote:

    Probably didn't help that they restricted the sale of the Fire phone to only AT&T subscribers, especially since there was so much skepticism pre-launch.

  • Report this Comment On August 29, 2014, at 8:42 PM, TMFJCar wrote:

    @Rayzer,

    Yep, the exclusive launch definitely didn't help. However, a full release probably wouldn't have been much better. These are probably huge Amazon fans that care less about carriers.

    @joryko,

    I agree it is better to evaluate Amazon from a cash-flow perspective.

    Thanks for reading,

    TMFJCar--the author

  • Report this Comment On August 30, 2014, at 3:44 AM, Sunchaser101 wrote:

    I am very disappointed in the performance of my kindal fire HD. I bought it to have a light portable device that would access my needs. It is a useless toy. It will not handle PDF files, because it cannot use flashplayer it will not run many valuable programs, I.E., Vector Vest US. for the same reason many instruction videos included with products, I.E., Roku. I paid over $500 for what I thought would be a tool, and ended up with a toy. After this experience I knew the Fire Phone would not be a success. My experience formed attitude is that Jeff Bezos is no Steve Jobs. He doesn't care about customer satisfaction, or product quality and because of that much of his rush to market, market bully business plan will not enhance his business. It will be hard for him to fail, but his narcissistic disregard for his customers will catch up eventually.

  • Report this Comment On August 30, 2014, at 1:41 PM, Seahorse wrote:

    I live in Hawaii. Shopping out of the urban area of Oahu (Big Island) is a challenge.

    Companies ding us 3-4x as much for shipping as you lucky folks on the "mainland" or Big Island of America. Amazon treats us the same as you. I check and see how much items will cost on other sites and usually end up buying on Amazon.

    Example: One company wanted to charge me $26.00 shipping on a vest which weighs under a pound. Amazon ships free. Hmmmm which to choose?

  • Report this Comment On August 30, 2014, at 1:49 PM, amazonboo wrote:

    I work for at&t retailer in New York and I am using a fire phone.

    With the launch of a new product there's always a contest for the employee's to promote the product.

    I'm very motivated to sell the FIRE but the problem is 50% are getting returned. It's so bad that my manager told me to stop selling them.

    Sales people don't even want to sell it.

    I would almost guarantee at of the 35,000 fire phones sold at least 10,000 were returned.

    The problems:

    1.Battery gets real hot only after using the phone on the internet for an hour.

    2. The battery life is terrible. By 6pm it's dead.

    3. Application bad. Customers banking apps weren't available.

    The best customer to purchase a fire phone, is an elderly person over 60 who never had a smart phone.

    The Galaxy and iPhone customer who had a 3 and 4 and wanting a 5 or 5s, will be very disappointed if he gets a fire .

  • Report this Comment On August 30, 2014, at 11:33 PM, Taju wrote:

    @Sunchaser101,

    If you have ever purchased and returned products or otherwise had to resolve an issue with Amazon, then I don't think you'd write "He doesn't care about customer satisfaction". Amazon took customer service to a level rarely seen before and they are still number one in my book even as others have tried to emulate their policies.

    Taju

  • Report this Comment On August 30, 2014, at 11:46 PM, chilero wrote:

    Whether the Fire phone was designed to push retail sales on its site or not the phone is still a flop. If nobody buys them then it doesn't help their sales at all.

    The other big problem was price. This phone should have been a $99 off-contract phone. Nokia made some great Windows Phones in that price range and sold millions of them. Amazon should have done the same. Instead Amazon went premium, a completely different strategy than their cheap Kindle Fires.

  • Report this Comment On September 02, 2014, at 8:53 AM, Mathman6577 wrote:

    Selling only 35,000 phones is not going too help Amazon at all, whether its profits on the actual device or a gateway into its services.

  • Report this Comment On September 02, 2014, at 11:18 AM, TMFJCar wrote:

    @chilero and Mathman6577,

    For the most part, I think you are right... now. But remember this 35,000 is one month. There are four ways Amazon's getting paid per unit.

    1. Your cost --$200

    2. Carrier subsidies $450

    3. Amazon Prime reups after the first year. $99/user net churn rate (good estimate 25%).

    4. A percentage of all goods sold on the device (estimate based upon Kindle device prime owners $1233/user GMV).

    For a company that makes nearly 75 billion, it is hard to move the needle. However, when you are making money so many ways from this unit I'd not be totally dismissive of Amazon's unit.

    And as always, thanks for the comments.

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