Amazon's (AMZN +3.49%)initial foray into the smartphone market has been a total failure.
Its Fire Phone was one of the biggest tech debacles of 2014. Unsurprisingly, Amazon declined to release exact figures, but estimates pegged its first month of sales at well under 100,000 units. The e-commerce giant rapidly cut the price of the device, at one point offering it for $199 just four months after its debut (less than one-third of its original retail price).
Amazon, however, remains undeterred. In December, Jeff Bezos reiterated his commitment to the hardware and a continued desire to compete with Apple (AAPL 0.85%) and Google (GOOG +1.44%) (GOOGL +1.71%) Android partners. But what can Amazon do to challenge these established handset vendors?
Offer it on multiple carriers
The next Fire Phone should be sold through every major carrier -- or at least, more than one. The Fire Phone debuted as an AT&T exclusive, limiting its customers to AT&T subscribers.
AT&T was, in some ways, the worst carrier Amazon could have picked: Historically, AT&T subscribers have been more loyal to the Apple iPhone than their counterparts at any other major carrier. On a percentage basis, Verizon, Sprint, and T-Mobile customers have purchased Android handsets in much greater numbers.
To be fair, the Fire Phone is not a true Android handset -- it uses a modified version of the Android operating system, dubbed FireOS -- but Android users may have been more receptive to the device than Apple loyalists. Amazon has its own app store (which it uses for the Fire Phone) that Android users can access to buy apps. Those who have bought a lot of apps through Amazon for their Android handset may be more willing to consider the Amazon phone.
Get better services
But they may still avoid switching until Amazon can offer compelling services. The single biggest problem with the Fire Phone is that it lacks access to Google services, including Google Now, Maps, YouTube, Play store, Chrome, and Drive, among others, which makes it a non-starter to Google enthusiasts.
Amazon has its alternatives, and for the tech savvy, there are various workarounds. But most of them pale in comparison to Google's offerings. Timothy Stenovec, writing for The Huffington Post, lamented the lack of Google Maps in his Fire Phone review, arguing that the Amazon alternative was, at best, a poor imitation.
Upgrading these services will not happen overnight, but if Amazon wants to compete in the handset business, it will need to improve them.
Be more creative with the pricing
Somewhat surprisingly, Amazon released its Fire Phone at $649 -- the same price as the competing iPhone 5s. To be fair, the Amazon device included a free year of Prime (a $99 value), but it was still notable for a company who has historically priced its hardware far below the competition.
Handset pricing in the U.S. is tricky -- with generous carrier subsidies and financing, consumers rarely -- if ever -- pay the true cost of their phone. For this reason, the Apple iPhone has found much more success in markets like the U.S. and Japan than in Europe or other countries where carriers are unwilling to subsidize handsets.
Google has been offering its low-cost Nexus devices off-contract for years but has seen surprisingly little adoption. Last year, it actually increased the price of its Nexus 6, arguing that Americans are more comfortable buying expensive, subsidized phones on contract.
It is not clear what Amazon could do here -- perhaps it could become a MVNO and sell plans to buyers at a loss or give the phone away to Prime members for free. But if the company wants to use the same strategy with handsets as it has used with its other hardware, it will have to try something different.
An uphill battle
All things considered, it is not surprising that the Amazon Fire Phone was a flop, and if its second try is anything like the first, it will continue to see disappointing sales. At this point, the U.S. smartphone market is largely saturated, and many buyers are comfortable with the Apple or Google ecosystems. If Amazon hopes to change that, it will need a product that is more readily available, more affordable, and one that comes with better services.
That is a tall order, and while it has never been smart to doubt Jeff Bezos, it is hard to imagine an Amazon handset succeeding any time soon.
