In the wake of dismal sales and a $170 million inventory charge, Amazon.com (NASDAQ:AMZN) has gone on the defensive with its Fire Phone. That includes making numerous comparisons to the company's original Kindle, as there was no shortage of skeptics when Amazon debuted the $399 device, including right here on Fool.com.
Of course, the Kindle proceeded to become one of Amazon's greatest successes, and utterly dominates the e-reader market today. However, Amazon should stop comparing the Fire Phone to the original Kindle.
Stop me if you've heard this one before
At the Fire Phone's unveiling, Bezos specifically called out The Motley Fool for doubting the original Kindle. It wasn't the first time either, as Bezos did likewise at the Kindle Fire introduction in 2011. Come on, Bezos, fellow Fool Rick Munarriz has already said he's sorry for doubting you.
In a recent interview with The Guardian, Amazon's vice president of devices in Europe, Jorrit Van der Meulen echoes the analogy:
If you look at version one of the Kindle e-reader it was pretty bad, like the reviews we received on it. But we said we're going to do keep going, keep investing and do this eventually, receiving many lumps along the way. The number of times we've been written off or received lumps because of short-term speed bumps -- the list is really, really long.
Van der Meulen says the company remains "undeterred" and is in it for the long haul.
Here's the thing. Comparing the Fire Phone to the original Kindle suggests that the Fire Phone can similarly overcome initial adversity, but most importantly, it ignores all context of the dramatically different markets that the devices participate in.
A trip down memory lane
Before the original Kindle launched in 2007, the e-book market was still nascent and fragmented. To be clear, many companies had released e-readers, most of which supported the open e-pub format, but the market had yet to take off in a meaningful way. Consider this chart of U.S. trade wholesale e-book sales through late 2010.
This was a young market, and Amazon quickly took hold of it with the Kindle and its proprietary file formats, combined with its typically aggressive pricing under the wholesale model, where it could choose to sell e-books at a loss in order to gain market share. At the same time, Amazon was already widely associated with selling books online, since that was the basis for the company's inception in the first place. The rest is history.
It's different this time
But the smartphone market is a completely different animal. The smartphone market underwent a renaissance in 2007 with Apple's iPhone, which kicked off the era of modern devices we all know and love today. Back in 2007, the modern smartphone market wasn't entirely unlike the e-reader market in that there weren't clear leaders yet and the platforms were still evolving. That was then, but it's now 2014.
For e-readers, the only relevant content category is e-books, where Amazon enjoyed several inherent advantages. For smartphones, there are many relevant content categories, but the most important is apps. That's particularly true since most entertainment media like movies and music are typically released across all platforms.
The primary differentiator of a smartphone platform is app selection. In this department, Amazon is far behind, specifically because its devices run a forked version of Android. Aside from a handful of temporary exclusives Amazon has scored over the years, there is literally nothing Amazon has in its Appstore for Android that's not in Google Play. But there are lots of things that Google Play has that Amazon doesn't. As of June, Amazon's Appstore had 240,000 apps and games. Right now, Google Play has 1.4 million.
Also, smartphones have much broader usage models since people use them throughout the day, unlike single-purpose e-readers. That puts even more emphasis on other hardware factors, like battery life. It's not just about content. Dynamic Perspective is not a powerful selling feature, nor is the ease of which people can buy even more things on Amazon with Fire Phone (there are already plenty of easy ways to buy things on Amazon).
The smartphone market has matured in a big way over the past seven years, with iOS and Android owning 95% of the market. Amazon is simply too late to make a dent in a mature market. Fire Phone has already cost Amazon shareholders nearly $200 million. How much more will it cost investors before Amazon finally does become deterred?
Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Amazon.com, Apple, Google (A shares), and Google (C 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.