Last week, Amazon (NASDAQ:AMZN) announced its long-awaited entry into the smartphone market: the Fire Phone. The Fire Phone is available today, with AT&T as the exclusive carrier, for now. The retail price is set at $199 for a 32GB phone with a 2-year contract (or $649 without a contract). For $100 more you can upgrade to a 64GB version.
Amazon's Fire Phone may struggle to take market share away from established smartphones like Apple's (NASDAQ:AAPL) iPhone and Samsung's Galaxy, but the Fire Phone doesn't need to do that well to be a success for Amazon. Before turning to what makes the Fire Phone a brilliant move for Amazon, let's take a closer look at the Fire Phone itself.
The Fire phone is pretty cool
There's a lot to like about the Fire Phone. Dynamic Perspective -- Amazon's name for the 3-D interface -- appears to be more than just a gimmick. Tilt-to-scroll and other gesture-based shortcuts look convenient. The physical camera shutter button is a welcome addition -- taking photos by touching a screen still feels a little unnatural.
But the real highlight is Firefly, a sophisticated scanning-and-shopping app that makes buying things on Amazon even easier than it already is. Of course, Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Android and Apple's iOS have similar apps, but none are as seamlessly integrated as Firefly. I mean, the physical shutter button doubles as a "Firefly button," bringing the app to the user's fingertips with a single push.
Should Amazon be afraid of "Googlefly" and "iFly"?
Firefly does give Amazon's Fire Phone a certain advantage. It's an elegant and utilitarian app, integrated beautifully into the phone. But how long will it be before a competitor develops something that performs as well or possibly even better than Firefly? Amazon could soon lose its "Firefly" advantage, making the prospects for the Fire Phone to grab any significant market share look even bleaker.
Yet, in one way, competitors developing their own integrated scanning-and-shopping apps is a big win for Amazon. Imagine, for instance, walking through a store wearing Google Glass, and suppose Google has developed its own proprietary scanning-and-shopping app. You look through Glass at a product you want to buy, and immediately Glass shows you a message saying there may be a lower price online. It then gives you the option to view an online product page on your connected Android smartphone.
Unless you need this item right away, what giant online retailer do you think you will probably end up buying the product from? Yep, chances are pretty good that Glass sent you to the product's Amazon page. You're now buying that product from Amazon.
A difficult road ahead for the Fire Phone
All that said, Amazon has a tough task ahead of it. Switching costs -- the investment in time and money it takes to switch from, say, the Apple ecosystem to the Amazon ecosystem -- present a significant barrier to the Fire Phone's success. Android and iOS together represent over 93% of the US market for smartphones, as of April 2014. That's a lot of users who may not be motivated to switch systems.
Getting devoted iPhone and Galaxy users to try something new is no easy thing. As Apple moves into wearables, with rumors of an iWatch in 2014 now all but confirmed, the Apple ecosystem becomes even more stable. Samsung's Galaxy Gear and Google Glass already present compelling entries into wearables, further entrenching users in the Android ecosystem. Apple's upcoming OS releases -- OS X Yosemite and iOS 8 -- make the integration between Apple products even more streamlined and useful, which increases the barrier to switching ecosystems.
The Fire Phone's integration with Amazon Prime services such as Prime Instant Video and the new Prime Music should help it. But are these benefits enough to force devoted Apple or Android users to switch operating systems? As an avid user of Apple products who's also an Amazon Prime subscriber and a frequent Amazon shopper, the Fire Phone is not yet compelling enough for me to make the switch myself.
If you're reading this, you probably already know that Amazon dominates online retail. In terms of online retail sales, Amazon is larger than its twelve largest competitors combined. Yes, you read that right -- combined. Any increase in mobile online shopping inevitably helps Amazon. If other smartphone makers do develop their own scanning-and-shopping apps, the majority of those sales will go to Amazon. Even if the Fire Phone burns out quickly because larger and richer competitors catch up, Amazon will be a winner after all.