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The Amazon phone: Likely an HTC killer, not an iPhone killer

Updated 4 years ago
Published Jul 9th, 2012 11:35AM EDT

Much of the buzz around the speculative Amazon phone positions it as a rival to iPhone… which makes no sense. The Kindle Fire did not slow down the iPad 2 one iota, but its aggressive pricing damaged the sales prospects of struggling Android tablets. Amazon specced and priced the Kindle Fire specifically to avoid competition with Apple, not to engage in direct battle.

In the smartphone market, Amazon’s likely goal is to attack the location-based product search, coupon and game/retail hybrid app markets, not the iPhone.

Apple currently dominates the $200 subsidized price point in the U.S. smartphones. It has effectively forced major brands like Motorola, HTC and Samsung to migrate most of their smartphones to $100 and $0 subsidized price points.

Who knows this better than Amazon, the leading player in introducing the $0 smartphone price category? Amazon has played a crucial role in accelerating the smartphone price erosion in America because it gets paid a hefty bounty for signing up consumers for two-year plans. This bounty gives Amazon a big edge over brick-and-mortar phone shops.

The Amazon bounty is the reason we now have models like Motorola’s six-month old, dual-core RAZR MAXX at below $100, with 4G LTE support and an HD camcorder.

The combination of Apple’s domination and the Amazon bounty means that there is no oxygen in the American smartphone market above $100 for anything but the latest iPhone and possibly a brand new Samsung or Motorola flagship model during the first couple of months of their life spans. And this means the new Amazon phone is highly likely to debut at $0 or $50.

Amazon was far more aggressive with the Kindle Fire pricing than the consensus expected. Yet even below $200, Kindle Fire sales momentum took a serious hit a few months after its launch. There is no room for Amazon to ask for any kind of premium, but a compelling model might do serious damage to LG and HTC.

Both have been squeezed badly by Samsung across the globe — HTC actually opted to pull out of Brazil rather than compete against Samsung’s low-end smartphones, priced outrageously at 300-500 reals.

Just 18 months ago, HTC dominated American smartphone market after Apple. Now, the company is struggling to crack the Amazon top five with even one model. HTC is attempting to price its brand new One X for AT&T close to $200 and is getting slammed by the sales explosion of the Samsung Galaxy S III. HTC’s Vivid for AT&T is struggling mightily, even priced at just $40.

LG’s downfall has been more drastic — its last refuge is the $0 category where it still has a foothold among older consumers at Verizon Wireless.

Amazon’s only hope is to get a smartphone out before Apple finally decides to get aggressive in the low-end market, and try to snuff out HTC, LG, RIM and Sony. This could give it a niche big enough to do some interesting things in retail.

And that is Amazon’s likely game-plan here; not to sell downloads or products from its web store, but to get a toehold in the brick-and-mortar retail. If it can conquer the bargain basement smartphone market, it can start attacking the potentially lucrative market of location-based product searches, coupons and location-based gaming.

Those are big growth markets of the next decade. And to get there, Amazon needs to elbow out the weak smartphone brands currently cluttering the $0 segment.

After launching mobile game company SpringToys tragically early in 2000, Tero Kuittinen spent eight years doing equity research at firms including Alliance Capital and Opstock. He is currently an analyst and VP of North American sales at mobile diagnostics and expense management Alekstra, and has contributed to, Forbes and Business 2.0 Magazine in addition to BGR.