Why would Amazon.com (NASDAQ:AMZN) , with no experience in the industry whatsoever, jump into a crowded pool like cell phones? The answer is simple: it doesn't need to take meaningful share because Amazon has a much bigger opportunity than the $600 it gets by selling a phone. This isn't the case for either Apple (NASDAQ:AAPL) or Google (NASDAQ:GOOGL). Here's why.
Amazon created it as a media distribution platform, not just a phone
One of the first comments in Jeff Bezos' presentation at the unveiling was "can we build a better phone for Amazon Prime members?". Amazon has geared this handset toward people who have embraced Prime rather than every possible phone buyer. Let's go beyond dynamic perspective and take a look at some of the other key features of the phone. One-handed navigation allows you to read or use the phone's other features in a crowded place when your other hand is full, like subways or other forms of mass transit. Song identification via Firefly allows you to buy or note a song you hear in a public place.
The shopping of the future
Firefly, one of the new key features, is a simplified shopping comparison engine that recognizes 70 million items and puts Amazon's store front and center with a dedicated button. You may not have purchased these items from Amazon in the past, but if it's cheaper or easier, why not? How much would Walmart pay to get you to carry its store around in your pocket? Much like the Dash wand a person can use to purchase groceries, Firefly expands comparison shopping to all categories Amazon covers and can increase Amazon's share of your spend.
A bigger back-end opportunity than the upfront sale
Through customer engagement Amazon has a much larger revenue opportunity than the $600 per handset that a hardware-focused company could make on a sale. If a Fire customer purchases an additional $25 worth of goods per month from Amazon, over two years that would offset the cost of the phone for the company. Amazon can recoup its investment in handset R&D by increasing its percentage of spend, not just by selling more units; this is an advantage over other handset manufacturers.
Taking a big chance with Dynamic perspective is the right thing to do
Amazon is taking a chance by offering Dynamic perspective but if it wants to set itself apart from the competition, it needs to do something different. While it could be a huge hit for gaming, its use in real-time maps could be overwhelming. As my colleague Evan Niu pointed out in his recent article, "When Amazon's Fire Phone Fails, It Will Be Jeff Bezos' Fault", iOS 7 caused seasickness with its parallax effect.
However, if the shifting perspective is limited to the apps where people want the effect, rather than the home screen, it could be a hit. It's too early to tell which way this will go but I'd offer a hat tip to Amazon for taking a chance with something new. It seems unlikely that a higher-quality camera, a slightly faster processor, or more apps in a closed app store would get Amazon's phone noticed.
The differentiation does not just come from Dynamic Perspective
In addition to a good phone with a high-quality screen and camera, Amazon is offering a few freebies as well. A free Prime membership is like a $100 rebate on the $200 price of the phone. Then there is unlimited cloud storage for photos. While 32GB is a healthy size for many people, as your app library or photo and video library expands, it can become constraining.
The competition is dancing around the integrated handset/commerce opportunity
Apple has been a focused hardware company that builds better products and charges appropriately for them. Commerce has been secondary for the company even though it does provide its customers with a way to buy media. The company's commerce engine, iTunes, allows people to shop for music and movies but has yet to take the plunge into other forms of commerce. Google on the other hand has embraced commerce but is trusting its handset partners to connect the public with its online store. Google offers an eBay-like shopping engine with a wide variety of merchandise. With a Samsung or Motorola handset, you have access to all of the tools but they do not provide a finished solution.
A different model that could be a financial home run
Amazon has combined all of the tools you need to use your handset as a shopping assistant with niceties that make it a differentiated media player. It also set itself apart from the competition with Dynamic Perspective, for better or worse. Time will tell if this makes it a hit or a nice product. Because of the larger back-end opportunity, Amazon doesn't need to sell hundreds of millions of phones to hit a financial home run.
David Eller has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, eBay, and Google (A shares). The Motley Fool owns shares of Amazon.com, Apple, eBay, and Google (A shares). 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.