Amazon.com’s Fire Phone Will Be Branded a Failure: Here’s Why That’s Wronghttp://www.fool.com/investing/general/2014/06/19/amazons-fire-phone-will-be-branded-a-failure-heres.aspx Jamal Carnette
June 19, 2014
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
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
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?