Amazon Fire Phone launch - The rise of a digital Empire

08 December, 2015 by Niels Nuyens | Retail

Think big, start small Amazon’s Fire Phone, the first smartphone built by the world’s biggest online retailer, has just been released. And it has met quite some skeptical reactions from the tech media. Some analysts seem confident that the Fire Phone will join the Facebook Phone to the hall of shame for failed OTT-smartphone launches. Ok, Amazon is not going to steal a significant market share from Samsung or Apple anytime soon. But is that Amazon’s main objective? Or is Amazon fighting a greater war?

Let’s also keep in mind that there is no need to become the leader to be successful. Look at the value that Apple, who is not leader, is able to get from each customer, offering a rich device and content ecosystem, while benefitting from a unique level of loyalty from its users. It is only about value.

Launching only in the United States, and through an exclusive deal with AT&T, Amazon is not seeking a great impact in terms of volume and market share in the handset landscape yet. The online retailer that has shown great success in extending its offer of books, retail, music and video (gathering its services within Amazon Prime offer) to e-readers and  tablets, is now trying to close up its own ecosystem. And it is undeniable that the smartphone was the missing brick of the fortress.

Creating its own smartphone and making sure that it is an attractive product at the high-end of the US market represents a huge investment for Amazon. No doubt that the company expects great benefits. We see the following opportunities:
-   Generate new revenues, by offering a new product. Unlike the Kindle and Kindle Fire, the Fire Phone is launched at market price, allowing Amazon to get margins from those sales.
-   Increase the penetration of its existing services (products and content) by bundling a free year of Amazon Prime with the purchase of the Fire phone. Giving away $99 dollars of premium services, Amazon intends to attract, convince, retain and lock-in a number of new customers.
Consequently, the main objective for Amazon is to further increase the value of each individual customer. Kindle owners already spend $443/year more on Amazon than non-Kindle customers, and Prime members spend $690 extra (Enders Analysis).

Asking for your hand in marriage
The device is of crucial importance. Apple’s success shows that the mobile device is the golden key to customers’ value. The dependencies are strong between mobile device, operating system, app-store and content platforms, especially for Apple’s closed ecosystem. The smartphone you use greatly defines the online services you pay for. These global players are fighting for your hand with their devices, in order to engage you, as if they were sliding a wedding ring on your finger. 

Amazon fears that through their hegemony on operating systems, Apple and Google could promote not only their own video and music services but also their e-commerce platforms or partners, kicking the e-commerce global leader out of the competition for the share of mobile user’s wallet. Apple already (and potentially Google soon) limits the possibilities of purchases on Amazon apps for smartphone. Historically very strong on desktop and laptop computers, Amazon faces the risk of missing the great mobile opportunity. In order to avoid this dramatic exclusion from the still boosting mobile e-commerce market, Amazon now has its own ecosystem, offering the whole spectrum of services: from mobile devices, app-store and operating system to content and online retail.

Ecosystem wars: The Amazon Empire strikes back
Apple achieves its performance through a value proposition based on impeccable design, simplicity, user-friendliness and multi-device continuity, making the iTunes platform very successful.
Amazon has always based its success on customer service, with a strong focus on speed of delivery, combined with attractive prices. Can Amazon now strike back at Apple and Google with such a value proposition for its entire digital ecosystem?

Why not. The Fire Phone is designed for customer service and delivery speed, with its Firefly button, or its Mayday service that gets you in touch with a video help-desk within less than 10 seconds on average! And bundling the purchase of the phone with Amazon Prime makes a lot of sense for Prime users who will definitely enjoy the quality of Amazon’s value proposition.

Bottom line: secure volume, increase value
Many analyst compare the Fire Phone with the Trojan Horse into people’s lives. The device is the key to unlock the value potential of mobile users. But the Fire Phone is even more a Trojan Horse into the tough business of smartphone manufacturing. Amazon is aiming at becoming a significant player on the smartphone market in order to secure a share that is large enough to fuel its content, product and service ecosystem. The Fire Phone is only a first step, to enter the market, surfing on the Kindle and the Kindle Fire success.

After proving it can be a credible player, Amazon will most likely release new waves of devices. With currently around 10 million Prime customers in the US, reaching 5% of US smartphone market in the long term would probably already be seen as a success. The e-commerce giant could very well build the second closed and complete digital ecosystem, extracting the value from a relatively limited but profitable customer base. First the US, and most likely in other markets in the future. Is a new digital empire rising?

Feel free to reach out to me to discuss! 
Silvere Mantz