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

Ignore Amazon's Fire Phone sales figures and focus on this instead.

Aug 28, 2014 at 11:30AM

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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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Jamal Carnette has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com, Apple, and Google (A and C shares). Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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