At $0.99, Amazon.com's Fire Phone Might Finally Be Heating Up

When Amazon.com (NASDAQ:AMZN) lowered the contract price of its Fire Phone to $0.99 on Monday, the decision was understandably met with broad-based skepticism. After all, some estimates say Amazon sold a minuscule 35,000 Fire Phone units in the first 25 days after its July 25 launch, so the move appeared to be one of desperation. It seemed apparent, then, consumers weren't willing to bite given a combination of the Fire Phone's modest app ecosystem, restrictive exclusivity with AT&T (NYSE:T), and initial un-Amazonian pricing at $200 with a contract (or $650 unsubsidized).

Now however, Amazon's price reduction might be just the spark consumers needed to adopt the Fire Phone en masse.

To be sure, a quick glance at Amazon's list of top-selling contract cell phones shows the Amazon Fire Phone is currently No. 1, ahead of two notably popular devices in Samsung's Galaxy S5, and LG's G3:

The Amazon Fire Phone is currently the site's No. 1 selling contract phone. Source: author screenshot/Amazon.com.

What's more, the Fire Phone is currently the ninth-most popular electronic device overall on Amazon.com. That might not sound impressive on the surface, but keep in mind as of two weeks ago, Geekwire reporter Tricia Duryee pointed out the Fire Phone was nowhere to be found in Amazon's top 100.

But this doesn't guarantee that the same trend is unfolding at other retailers. To be sure, Amazon affords the Fire Phone much greater visibility on its site than competitive devices enjoy. You can't blame Amazon for using its own valuable online real estate to promote its latest gadgets.

Firefly helps Amazon Fire Phone identify millions of real-world objects, Credit: Amazon.com.

Outsized value at $0.99
The Fire Phone packs in some impressive tech, most notably including its 3D-esque "Dynamic Perspective" viewing capability, as well as the slick Firefly functionality to help you identify -- and, if applicable, purchase from Amazon -- nearly any object in the real world. In addition, Fire Phone comes with a free year of Amazon Prime -- a $99 value -- whether or not you're already a Prime member.

Given its Prime inclusion in particular, the Fire Phone's new contract price seems like a no-brainer for those who (1.) already shop often at Amazon, (2.) are looking for a nearly free phone, (3.) don't mind locking in with AT&T, and (4.) aren't already set on waiting for Apple's iPhone 6 to hit the market on Sept. 19, at which time the older iPhone 5c will also become free.

Amazon can win at this price, too
At the same time, however, will this negatively affect Amazon's bottom line? On one hand, though many smartphone industry watchers fully expected Amazon to price the Fire Phone this way in the first place, selling a large number of devices at a $200 discount to its introductory price can't be financially healthy -- especially when Amazon's giving away a full year of Prime services to boot.

On the other hand, it's been obvious since the beginning that Amazon's Fire Phone has ulterior motives by acting as a not-so-subtle enabler of shopping consumers. Some early estimates stated "just" 2.7 million Fire Phones sold mostly to existing Prime users -- which is admittedly a long way from where it stands today -- could add as much as $2 billion to Amazon's top line from incremental Amazon.com purchases. Whether that translates to Amazon's bottom line is an entirely different story, but we already know Amazon prefers to shun short-term profitability in the name of grabbing market share to grow in the already low-margin retail sector.

Foolish takeaway
Amazon doesn't typically unveil specific unit sales numbers for its various hardware devices, and I'm not holding my breath for it to change that habit for the Fire Phone in upcoming quarters. But I do think it's worth keeping an eye on whether Fire Phone manages to stay in Amazon's list of top-selling devices given its new price going forward. If it can do so for any meaningful amount of time, it might not be the huge flop everybody thinks it is.