The ongoing land grab for smartphone market share has come into full focus recently, with the latest iPhone event dominating tech headlines.
Although rising competitors like China's Xiaomi aim to increasingly challenge Apple, the Mac Maker will face one less competitor when its iPhone 6s comes to market on Sept. 25. As many widely noted, e-commerce colossus Amazon (NASDAQ:AMZN) elected to cease selling its hugely unsuccessful Fire Phone as of earlier this month. So, with the benefit of a few weeks' perspective since Amazon decided to kill the Fire Phone, what can Amazon and tech investors more generally learn about its smartphone misadventure?
Amazon Fire Phone -- a device without a strategy
Amazon helped pioneer the e-reader market with its hugely successful Kindle line of devices. When it came to the Kindle, the strategy was obvious: sell more e-books. By producing a device that enables on-the-go reading, Amazon shrewdly created its own tool to drive fresh demand for the e-books it sells through its online store.
And as the company that aspires to sell everything to everyone, Amazon clearly designed the Fire Phone to also act primarily as a Trojan horse for its e-commerce efforts. Case in point: Firefly, one of the Fire Phone's marquee features, effectively acted as a mobile price-comparison tool. Users could simply press a dedicated button on the left side of the device and Firefly would identify goods using two of its six cameras, compare them against Amazon's own e-commerce store, and allow users to purchase the often-cheaper goods through Amazon in only a few clicks. The feature perfectly encapsulates Amazon's not-so-subtle Darwinian attitude toward its retail sales, but also serves as an example as to why the Fire Phone was destined to fail.
Owing to its notorious efficiency, Amazon de-emphasized or overlooked critical factors in consumers' smartphone-purchasing decisions, such as design. Many reviews characterized the look and feel of the Fire Phone as inoffensive but also uninspiring. And in a world where consumers have a demonstrated preference to spend more for more fashionable handsets, Amazon's utilitarian approach seemed unlikely to resonate with consumers en masse.
Amazon began slashing prices on the Fire Phone only two months after its launch, making it nearly free on contract. Then only three months after its launch, Amazon wrote down nearly $170 million in Fire Phone inventory in its Q3 earnings report. And in recent weeks, the company indicated it sold through its entire existing stock of Fire Phone inventory and did not plan to resupply, a move that effectively discontinues the product altogether.
Where Amazon failed with the Fire Phone
In analyzing Amazon's Fire Phone failure, a clear lesson emerges rather quickly. In creating the Fire Phone, Amazon sought to create a smartphone that catered to its business objectives, rather than the needs and wants of actual smartphone owners. Whereas the Kindle e-reader created a perfect alignment of interests between users and manufacturer, the Fire Phone's not-so-subtle attempt to woo consumers using a fleeting mix of cheap design and gimmicky software (eye tracking, anyone?) should come as no surprise as having failed to strike a chord with consumers.
That being said, Amazon's efforts to expand its business opportunities through new hardware and software will certainly continue with its usual dogged persistence. A recent Wall Street Journal report claims Amazon plans to launch a new 6-inch Fire Tablet in coming months that will cost roughly $50, which is nearly half the price of its cheapest tablet to date. Also worth noting, Amazon maintains a fleet of apps in Apple's App Store and Google's Play store for Android that effectively create those same direct channels into Amazon's e-commerce ecosystem that were the genesis of the Fire Phone strategy from the beginning.
So, in the context of Amazon still enjoying a means of connecting with consumers' purchasing whims in real time, it appears the company has found new ways to realize many of the benefits of the explosion of smartphones without assuming the kinds of risks associated with manufacturing and selling a mass-market smartphone. At the end of the day, it appears best for its investors and consumers alike that Amazon threw in the towel on its ill-conceived smartphone experiment. But whether Amazon has given up on its smartphone ambitions entirely remains another matter of debate.
Andrew Tonner owns shares of AAPL. The Motley Fool owns and recommends AMZN, AAPL, GOOG, and GOOGL. 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.