News Column

Amazon's Fire Phone: Why Bezos Still Wants In on the Saturated Smartphone Market

June 20, 2014

Equities Staff

Online retailer Inc. (AMZN) is the latest entrant in the smartphone market. The company, on Thursday, unveiled much awaited smartphone called The Fire Phone. The big question, however, is whether Amazon will succeed in the smartphone market, which is dominated by Apple Inc. (AAPL) and Samsung (SSNLF) .

Amazon's Prospects as a Smartphone Player finally launched its long-awaited smartphone this week. The Fire Phone, as the new smartphone is called, was unveiled by Amazon CEO Jeff Bezos at an event in Seattle on Thursday.

The new phone has some unique features. Users can scroll through web by tilting the device. The Fire Phone will be released on July 25. The phone will be available for $199 to $299 with a two-year contract withAT&T Inc. (T) . According to the company, the Fire Phone will sell for $649 to $749 without the contract.

Barriers to the Smartphone Market

Amazon, which is the world's largest online retailer, is entering a tough market. The smartphone market is dominated by Apple and Samsung, who together accounted for 46% of the worldwide smartphone market in the first quarter of 2014, according to research firm IDC.

Indeed, Amazon is entering a market that has seen the likes of Blackberry Ltd. (BBRY) and Nokia (NOK) . Blackberry once dominated the smartphone market, however, as competition increased the company lost its dominant position and has been struggling. Nokia never really got off in the smartphone market.

Given how difficult it is to gain a foothold in the smartphone market, Amazon's move to enter at this stage does come as a surprise. It is likely that the company might fail to convert Apple and Samsung customers. However, just like Amazon has done with its tablet, the company is likely to use the smartphone platform to sell more of its products and services such as e-books and digital music. This is what analysts think the company is trying to do.

Speaking to The Wall Street Journal, James McQuivey, analyst at Forrester Research, said that commerce is the reason Amazon is getting into what is so obviously one of the most difficult markets. According to McQuivey, the phone will create such a tremendous commerce opportunity at any moment. He in fact compared the smartphone to Amazon's introduction of one-click checkout on its website nearly 20 years ago. McQuivey noted that the one-click checkout made shopping online easier and with the smartphone, users will now have that easy checkout in their pocket.

It will be interesting to see if this what Amazon intends to do with the smartphone platform. For now though, investors are anxious about the company's entry into a difficult market. In the last two days, shares of the online retailer have fallen nearly 4%, taking its losses for the year to over 18%, compared to a gain of nearly 5% for the NASDAQ.


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