It's been less than two months since Amazon.com (NASDAQ:AMZN) launched the Fire Phone. Announced in June, the device began shipping on July 25 in the U.S. as an AT&T exclusive. The odds have been stacked against the e-commerce giant, in part because it's incredibly late to the smartphone market, but also because of the notable departure in pricing strategy.
It appears Amazon may have recognized its mistake and has announced a major price cut for the Fire Phone. The device debuted at $200 on contract, or $650 unsubsidized. Fire Phone is getting a $200 haircut, and is now available for $1 on contract, or $450 unsubsidized.
That's not a good sign for Amazon's daring attempt to take the smartphone market by storm.
A numbers game
Last month, The Guardian crunched some numbers and estimated that Amazon had sold no more than 35,000 units within the Fire Phone's first month. That figure was based on data from ad network Chitika, which put Fire Phone's usage at approximately 0.02% within its network. Author Charles Arthur then cross-referenced that with comScore data and rounded up to give Amazon the benefit of the doubt.
Even if remotely accurate, 35,000 units is terribly low for a brand-new phone that spent years in development. Chinese vendor Xiaomi just launched a budget device and sold 40,000 units in India in 4.2 seconds. Xiaomi is decidedly playing in an entirely different market segment, but the point is, the Fire Phone does not appear to be doing well. Besides, lacking official data from Amazon, investors have little choice but to rely on third-party estimates, for better or for worse.
The downside of exclusivity
One of the things holding the Fire Phone back is the fact that it was launched as an AT&T exclusive. Carrier exclusives are becoming rarer every year, as smartphone vendors have made progress shifting away from the practice. Chitika attributes the device's poor sales performance in part to exclusivity.
However, there is a technical wrinkle to consider. Given Amazon's limited experience in developing smartphones, it smartly chose to support GSM standards, and there is no CDMA model. That means the Fire Phone would inherently only be compatible with AT&T's and T-Mobile's networks. While choosing only GSM excludes two of the four major domestic carriers, it does open up the door to countless wireless carriers in international markets given GSM's global dominance relative to CDMA.
To that end, Amazon has also just announced that Fire Phone is coming to the U.K. on September 30. The company is again playing the exclusivity card, except this time with Telefonica's O2 brand. With just under 24 million subscribers, O2 is a much smaller carrier than AT&T, so opportunities across the pond will be less (albeit additive).
For now, Fire Phone continues to look like a flop. To compete in developed markets, Amazon needs a better content ecosystem with more apps. Amazon has plenty of content in the form of books, videos, and music, but when it comes to smartphones, apps are the category that matters. The company says app submissions to its Appstore doubled in the weeks following the Fire Phone's unveiling, but that's about as helpful as Jeff Bezos saying he ate twice as many springs rolls as he did yesterday.
One could argue that Amazon should be even more aggressive. The subsidized price is about as low as it can get, but that doesn't mean Amazon can't further reduce the full retail price. That would give the Fire Phone better odds if Amazon continues expanding into other international markets, but part of Fire Phone's appeal is the included Prime subscription, and Prime isn't available in most emerging markets. That's what I call a Catch-22 (which is available in paperback for $10.52 with Prime shipping).
Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends Amazon.com and Apple. The Motley Fool owns shares of Amazon.com and Apple. 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.