When a company wants to make a smartphone or tablet, it usually licenses Android from Google. By working with Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), manufacturers gain access to system-level features such as APIs for push notifications and system alerts that Google developed for the operating system.
But Amazon.com (NASDAQ:AMZN) thinks it can help manufacturers differentiate their products by using its system-level Android features. According to The Information, Amazon has reached out to OEMs to deeply integrate its services into handsets -- not just preloading apps. Some manufacturers may bite at the relatively low-risk opportunity to include Amazon's technology such as Alexa and FireFly into their phones, but they could face the wrath of Google if they do.
The big problem
Google doesn't like it when manufacturers tinker with Android. While the operating system is open source, Google has strict requirements in place to get the most out of Android's ecosystem, such as the Google Play app store. If an OEM wants to install Google Play, it must also install a whole bunch of other Google apps. Moreover, Google only allows limited modifications to the operating system, which doesn't allow manufacturers to differentiate their devices very much.
The kind of system modifications Amazon is proposing probably violate Google's agreements with manufacturers. Amazon itself has dealt with the problem for years with its Kindle Fire tablets. Over the years it's developed its own app ecosystem and APIs for push notifications, in-app purchases, mobile ads, maps, authentication, and all the things that consumers don't notice unless they're missing. Amazon would surely provide access to those API libraries if it meant deeper integration of its services.
But without the Google Play Store, any smartphone could be a tough sell to consumers. Amazon may be able to work around Google's restrictions, but in that case it won't be able to completely overhaul the system with all of its services.
Is this the Amazon Fire Phone 2.0?
Amazon's previous foray into smartphones went down in flames. The Fire Phone sold so poorly, Amazon was forced to slash its price and write down $170 million in inventory.
Partnering with a third-party manufacturer removes the risk of having something like that happen again, but maintains the core benefits of owning the operating system of a phone. Amazon's services will be deeply integrated into the phone, encouraging owners to become Prime subscribers and buy more things from Amazon's retail operation. Additionally, product sales on Amazon could be carried out more easily, since they wouldn't be subject to Google's in-app purchase rules.
Manufacturers can take a low-risk approach by repurposing existing Google Android phones to run Amazon's software. If a device doesn't sell as an Amazon phone, the manufacturer can simply install Google's software instead of Amazon's and probably sell the remaining inventory.
Maybe it's Amazon's version of the HTC First
The HTC First was a short-lived smartphone the manufacturer developed in partnership with Facebook (NASDAQ:FB). Facebook developed a user-interface layer for Android, completely overhauling the look and feel of a phone and integrating its services into a deeper layer of the OS, just as Amazon desires.
But there's a reason the HTC First doesn't resonate with most readers. It was a flop. Just one month after its release, HTC dropped the price, and reports surfaced that it was already planning to discontinue the device.
So not only does Amazon have the failed launch of the Fire phone looming over it, but it has the failed attempts of other software makers to overhaul Android to overcome as well. It's doubtful HTC forgets how the HTC First performed. Why would it think Amazon's solution is any different?
The strategy of the Fire smartphone or Amazon's newly reported strategy to partner with OEMs has just one fatal problem. People have to want the phone. And it's really hard to make a phone that people want, especially without the help of Google.