There's been no shortage of speculation on an Amazon.com (NASDAQ:AMZN) Kindle Phone of some sort over the years. After all, in the age of mobile computing, smartphones and tablets go hand-in-hand and the e-tailer has made quite a dent in the tablet market to date with the Kindle Fire.
The most recent rumor about the alleged "Kindle Phone" is that the device may feature a 4.7-inch screen, which could potentially qualify it as a Kindle Phablet. What does Amazon have up its sleeve?
Rumor has it
Taiwanese rumor mill DIGITIMES is fueling the speculative flames today, citing "industry supply chain sources" that say Amazon has its sights set on a 4.7-inch display, up from its previous plan to go with a 4.3-inch display.
The trade up was reportedly due to the observable consumer trend toward larger displays, even though the data shows that large devices are still a relatively niche, albeit growing, segment of the broader smartphone market. For a device with "just" a 3.5-inch display, Apple's (NASDAQ:AAPL) iPhone 4S held its own admirably against the onslaught of Google (NASDAQ:GOOGL) Android phablets of yesteryear.
DIGITIMES' sources also say that Amazon is beefing up other specs of the device and that the company is targeting a launch during the second quarter. Amazon has reportedly tapped Foxconn as the contract manufacturer, but there have been hiccups with the production schedule.
Of course, Apple is Foxconn's big fish and new iPhones could also be due out in June or July. That would put Apple's production ramp right in the same time frame, and Foxconn would obviously be giving the iPhone maker priority when it comes to capacity considering the sheer volume that Apple brings to the table.
Logistics aside, does a Kindle Phone or Phablet have any chance of succeeding?
That's what he said
First off, let's go ahead and assume that Amazon is indeed building a smartphone. CEO Jeff Bezos all but confirmed as much in January in an interview with the Harvard Business Review. The executive was discussing speculation of Amazon building physical retail stores, but when directly asked about the prospects of an Amazon smartphone, he added:
Yeah, absolutely. I mean, that's the kind of thing where you would ask, "What is the idea? How would it be differentiated? Why wouldn't it be 'me too'?"
What would the idea of a Kindle Phone be that wouldn't be "me, too"? That's a challenging question to answer, especially when you consider the fact that Amazon's favorite competitive weapon has always been price -- a weapon that's effectively neutered by subsidies in the smartphone market.
The price can't be right
Unlike in the tablet market, where Amazon has found success by undercutting on price, the smartphone market is chock-full of free smartphones (after carrier subsidies kick in). Assuming that Amazon isn't willing to pay you to take possession of a smartphone, it can't go lower than $0.
Every major wireless carrier has numerous devices available for free on different operating system platforms. Even though Amazon has its own Android Appstore and content offerings, they still pale in comparison and the value proposition isn't as strong at price parity. Offering a Kindle Phone that feeds into Amazon's services that's free on contract would be the very definition of a "me, too" device.
What about the unsubsidized market? There seems to be potential for disruption there, except that Google is already trying its darnedest with the Nexus 4, which starts at $300 unlocked and off contract. The Nexus 4 is proving quite popular among Android enthusiasts looking for a stock Android experience, but the search giant was initially having a hard time keeping inventory on hand since manufacturer LG has a disincentive to cooperate since the device undercuts its own higher-end offerings.
It's conceivable that Amazon could build a phone and sell it at cost for $150 to $200 unsubsidized and unlocked to undercut the Nexus 4. But then we're talking about a very small subset of the broader market: the $150 to $200 unsubsidized price range at only AT&T and T-Mobile.
Unlocked phones typically use GSM, which would immediately take Verizon and Sprint off the table if Amazon wanted to go that route. AT&T is already entrenched in subsidies and service contracts, and 84% of its smartphone activations in Q4 were iPhones, so Amazon probably wouldn't gain much traction on Ma Bell's network.
Much like in the tablet market, Amazon can be expected to target the U.S. market first because that's where its content and services offerings are the strongest. Amazon will try its best not to blend in with the crowd, but the domestic smartphone market is simply too crowded already.
Fool contributor Evan Niu, CFA, owns shares of Apple and Verizon Communications. The Motley Fool recommends Amazon.com, Apple, and Google. The Motley Fool owns shares of Amazon.com, Apple, and Google. 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.