It's official: With the release of its new Fire phone on July 25, Amazon.com (AMZN) will enter the crowded world of smartphones.
The Fire phone will be sold exclusively through AT&T (T), and you can pre-order the 32GB version now for $199 with a two-year contract, or $649 without one. On a subsidized basis, that puts it on the same level as the 16GB versions of both Samsung's (NASDAQOTH: SSNLF) Galaxy S5 and Apple's (AAPL) iPhone 5s. Extra memory notwithstanding, this is a radical departure from the $0 subsidized price tag nearly everyone expected Amazon to introduce.
In addition, there was no talk of a special sponsored data plan through AT&T as many had speculated, so we can't help but wonder why Amazon would tether itself to a single carrier. Then again, it's also not clear exactly how long the Fire phone will remain exclusive to AT&T, so perhaps this is just Amazon's way of testing the waters before it expands distribution.
Amazon's Fire Phone sports several unique features, Credit: Amazon.com
In any case, it's obvious that selling millions of low-margin Kindle tablets wasn't enough, and the Fire phone effectively hurls Amazon even further into the battle with Apple and Samsung for consumers' attention through mobile supremacy.
But the move wasn't exactly a huge surprise. Two weeks ago, Amazon teased the Fire phone with invitations to Wednesday's launch event, complete with a video depicting test users' awe struck impressions of the then-unseen device.
So what were they gawking at? Here are a few key features which make Amazon's Fire smartphone so special.
See those four dots in the Fire phone's corners? They're cameras -- or, to borrow Amazon's words, "ultra-low power specialized cameras." When combined with a dedicated custom processor, sophisticated vision algorithms, a new graphics rendering engine, and four front facing infrared LEDs for nighttime operation, these cameras will usher in a new class of immersive 3-D apps and games.
But instead of 3-D, Amazon's calling it Dynamic Perspective. That's fair enough, as the sensor system also enables a number of one-handed controls enabled by tilting or swiveling the Fire phone, including a slick one-handed auto-scroll feature to let you read long web pages or books without ever touching the screen.
So why all the cameras and infrared sensors instead of your typical accelerometers? In short, Dynamic Perspective doesn't just respond to the phone's movement, but rather tracks your eyes and face to ensure the picture shifts to continuously provide you with an optimal viewing experience.
About those ulterior motives...
But Dynamic Perspective also isn't just for show. So what's Amazon's real end-game here?
In a word: Shopping.
Dynamic Perspective isn't just about games, but has the potential to change online shopping as we know it. To be sure, Amazon simultaneously announced a new Amazon Shopping app for Fire phone, teasing Dynamic Perspective will let you use the app to "peek to see detailed views of clothing, shoes, and more."
Amazon Firefly can recognize almost any object. Then, it wants help you buy it. Credit: Amazon
And that's where another feature called "Firefly" comes in. With the touch of a button, the Fire phone can use Firefly to scan and identify printed phone numbers, web and email addresses, QR and bar codes, and -- this is where it gets really interesting -- can recognize over 100 million other items including movies, TV episodes, songs, and products.
Once the item is identified, Firefly enables consumers to take action -- including, calling that printed number, visiting the printed URL without typing the address, or immediately buying said movie, TV show, song, or product right then on Amazon.com.
Even better, for a limited time, Amazon is also throwing in a free year of Prime membership for anyone who buys the Fire phone -- whether or not you're already a Prime subscriber. And why not? With the temptation of free 2-day shipping at your fingertips for millions of items, it'll go a long way toward pushing buyers over the edge.
Foolish takeaway
So how big could this be? SunTrust analyst Robert Peck already weighed in to say this could add as much as $2 billion to Amazon's top line. Now that's a very rough estimate at this point, assuming roughly 2.7 million Fire phones sold primarily to existing Prime members, with each new customer buying around 10 items per year at $50 each.
Whether a significant number of non-Prime members bite on the offer remains to be seen. But even if they don't, selling into it's existing Prime user base should still provide a significant boost to Amazon's top-line, and help it steal even more market share from struggling brick-and-mortar competitors in the retail space. In the end, that's why I think Amazon shareholders have every reason to rejoice over their company's new smartphone ambitions.
