Handset Wars: Here's Why Amazon.com, Inc Is Launching Its Own Smartphone

Discover why the world's largest online retailer plans to launch its own smartphone.

Alvaro Campos
Alvaro Campos
Apr 28, 2014 at 11:45AM
Technology and Telecom

Amazon (NASDAQ:AMZN) continues to aggressively diversify its product and service portfolio. Only last week, it released its own set-top box, called Fire TV, through which the company can cross-sell its own video games and movie service. Now, the company has revealed that it is launching its own smartphone, empowered by a customized Android operating system.

This move places Amazon in a different segment of the mobile device market in which it will face tech giant, Apple (NASDAQ:AAPL), and Korean manufacturer Samsung (NASDAQOTH:SSNLF). As usual, it will face the challenges involved in market penetration. However, it seems that after extensive development, Amazon's smartphone brings features that make it very unique and appealing.

Innovative differentiation
According to BGR, Amazon's smartphone will have six cameras and a glass-free 3-D interface that will offer a unique user experience. Through this feature, users of the mobile device can make purchases from the Amazon store after viewing products in a three-dimensional shape. The source has stated that four cameras in the screen will track eye position and movement to enable the 3-D display. In that way, users can tilt the smartphone to see preferred angles of the screen content. These innovative characteristics can help Amazon enter the market successfully, as none of its competitors have a similar product.

New revenue streams
If its smartphone gains popularity, Amazon could significantly increase its top line, as sales of the smartphone would generate an important portion of revenue. Plus, the devices could actually open up possibilities for further monetization through apps, advertising, and other forms of digital media. Amazon is currently achieving this with its tablet, the Kindle Fire.

According to Business Insider, an analysts' report estimated that the Kindle ecosystem would account for 11% of Amazon's revenue in 2013. It also noted that Amazon Appstore generates substantial revenue for the company. So, Amazon's smartphone has the potential to replicate the Kindle Fire's success, as it can lead users to spend on apps and other digital services.

Amazon could also encourage its smartphone users to subscribe to its other services, like Amazon Prime, as it does with Kindle Fire users. As the world's largest retailer, the company can offer several benefits like two-day free shipping, e-book borrowing, and free video streaming. These can be quite attractive for both online shoppers and people just looking for entertainment. Plus, more subscriptions will favor the company's top line.

It also seems like Amazon hopes to increase online store sales through the 3-D product viewing feature. This feature can help users make better buying decisions, leading to increased satisfaction. Moreover, it may provide an entertaining online shopping experience, which could lead users to buy more frequently.

Strong competitors
Apple, is currently the leading smartphone manufacturer. A report from research company comScore shows that Apple holds the largest share (41.3%) of smartphone subscribers in the U.S. In its last quarter of 2013, Apple sold 51 million iPhones, falling short of the expected 57 million .  Now, however, this situation has improved significantly. In its 2014 Q2, the company revealed that it sold 43.7 million iPhones, surpassing Wall Street's estimate of 38 million. The company also showed $45.6 billion revenue, which exceeded analysts expectations.

Samsung, the second-largest manufacturer of smartphones, holds a 27% share of smartphone subscribers. The company is famous for its Galaxy series of mobile phones. Moreover, it could increase its share this year with the release of the new Galaxy S5, which has recently been launched in 125 countries. In an interview with Reuters, top executives at the company declared that the S5 could generate more sales than its predecessor, the S4. It was also stated that, so far, the new phone is selling more than the S4 did in its initial launch period. With 70% of its profit coming from smartphone sales, Samsung is aggressively targeting top leadership in the mobile device market.

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Final Foolish takeaway
The Amazon smartphone has a strong differentiation that can help the company successfully enter the market. In addition, it has the potential to generate new revenue streams. Besides smartphone sales, it can lead to more online store sales, increases in subscriptions to web services, and expanded monetization of apps, advertising, and other forms of digital media.

In that manner, Amazon can increase its top line significantly with its new device. However, Amazon must take into account that its competitors dominate the market with aggressive strategies to maintain their leading positions. Still, the company is the world's largest online retailer and has a well-established, notable brand. These factors allow it to offer special benefits to its smartphone users, facilitating its entrance into the market.