For a year now rumors have been swirling as to when Amazon.com, Inc. (NASDAQ:AMZN)’s line of tablets will make the jump to directly compete with the iPhone and Android phones with a Kindle Smartphone. The latest round of rumors come to us from a somewhat more reliable source than the anonymous comments we are used to on tech forums, namely the Wall Street Journal. People familiar with the skunk works going on inside Amazon.com, Inc. (NASDAQ:AMZN)’s super-secret Lab126 tell the WSJ that Amazon has a family of potential smartphones in development including one with a new type of 3D screen.
A 3D hologram smartphone is not something Amazon.com, Inc. (NASDAQ:AMZN) should come out with and something they probably won’t come out with. Jeff Bezos has overseen Amazon.com, Inc. (NASDAQ:AMZN) transform from an online bookstore, to an online retailer, to a content provider and consumer electronics maker. A trademark of all of the hardware that Amazon has thus far launched has been its low price, simple hardware and emphasis on the rest of the Amazon ecosystem. This has allowed the Kindle e-readers to remain the most popular by far and the Kindle Fire to gain popularity; in January of 2013 estimates were that the Kindle Fire nabbed as much as 33% of the Android tablet market share.
Likewise we are expecting a far more substantial upgrade to Apple Inc. (NASDAQ:AAPL)’s iOS operating system with iOS 7 slated to launch this summer. Google Inc (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL) also offer a host of connected services that spill over to the web and to desktop and laptop computers including, email, online storage, calendar, music, e-books and more. Amazon has some of these services but not all of them and they are not as refined as their competitor’s offerings. Microsoft Corporation (NASDAQ:MSFT) is also building up a cross platform ecosystem for Windows Phone and Windows 8 and they are facing significant headwinds competing with Apple and Google Inc (NASDAQ:GOOG), Windows Phone currently has about 5.5% of the US smartphone market. Amazon’s entrance into the smartphone arena would face even stiffer competition.
An Amazon smartphone would need to target the mid-range market for smartphones at least on price. However if Amazon wanted to truly compete they could not afford to sacrifice on hardware, this means they would have to sell a top-tier device in terms of hardware at a mid-tier price, probably close to free from launch on contract and less than $400 off contract. Amazon would then make up the lost revenue from selling a high-end device at a low price with advertising and pushing Amazon services like Amazon Music, Prime and their retail business. This is what Amazon currently does with the Kindle Fire tablets. However a top-tier smartphone would be a more expensive device for Amazon to take a gamble like this on, especially when the Nexus 4 is already $300 off contract and several Android and Windows Phones are $0.99 on contract. Apple Inc. (NASDAQ:AAPL) continues to make older versions of their iPhone and sell them at a cheaper price on contract to ensure that even they have a play in the mid-tier smartphone market.
What would not help Amazon compete with Android and iOS, not to mention Windows Phone and Blackberry, would be cheap hardware gimmicks like a hologram 3D phone. 3D phones have already been released multiple times in the US and although they have had limited success on Sprint they have not seen widespread adoption. HTC had the EVO 3D smartphone in 2011 and LG had a 3D phone launch just after that, both fell short of the 3D hype and HTC is struggling to compete against Samsung. Additionally Nintendo released a 3D mobile gaming handset to lukewarm reviews. In a smartphone market as large and competitive as we currently have, a device with the aforementioned characteristics has a far better chance of success than a one trick pony of a phone that will soon be seen as a gimmick.
Bezos has kept tight control over Amazon, running the company on razor thin margins with little regard for what some on Wall Street would like to see, so selling a smartphone at breakeven would not be unheard of. Using a modified version of Google Inc (NASDAQ:GOOG)’s Android OS with an Amazon App Store and user interface as Amazon does on the Kindle Fire tablets would be a good base for a Kindle Smartphone. A die hard Amazon fan base would also spur initial sales and create buzz for an Amazon smartphone. However a completely new and untested 3D technology when every prior 3D mobile handset has failed to gain widespread support is not what Amazon is about and would be a strategic error on the part of Bezos.
The article Fiery Déjà Vu originally appeared on Fool.com and is written by David Danna.
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