Amazon (NASDAQ: AMZN) bungled the pricing of the Fire phone, its first smartphone, but is not giving up in the market and will continue to enhance the user experience on the device, according to an Amazon executive.
With the Fire phone, which came out in July, Amazon did not follow its usual model of undercutting rivals on hardware pricing in the hopes of making more revenue through content sales. Instead, Amazon went with an exclusive partnership with AT&T Mobility (NYSE: T) and charged a very traditional $199 for the 32 GB model and $299 for the 64 GB version with a two-year contract.
In an interview with Fortune, David Limp, Amazon's senior vice president of devices, admitted that Fire misfired, at least in terms of price. "We didn't get the price right," he said. "I think people come to expect a great value, and we sort of mismatched expectations. We thought we had it right. But we're also willing to say, 'We missed.' And so we corrected."
Indeed, in early September, just weeks after releasing the phone, Amazon dropped the price of the Fire phone to 99 cents with a two-year contract with AT&T. Limp said the sharp price cut, usually an indication of floundering device sales, led to much better sales. He also told Fortune that the company has issued two software updates that improved bugs and kinks customers had been experiencing.
Amazon CFO Tom Szkutak disclosed during the company' third-quarter earnings conference call with analysts that Amazon would book a write-down charge related to unsold Fire phone inventory and supplier commitment costs of $170 million. Szkutak said the vast majority of that charge was related to North America, but there was around $25 million in international costs as well. Interestingly, Szkutak noted that at the end of the third quarter, the company had around $83 million worth of Fire phone inventory on hand.
Despite the poor sales, Limp said Amazon is not pulling the plug on the Fire phone or giving up in the smartphone market. "When you're taking risks, they're not all going to pay off," said Limp. "Those are the facts."
Limp added that other Amazon devices, like its Fire tablet line and Fire TV streaming set-top box, have been "very successful" with customers, though he declined to discuss sales figures. Additionally, Amazon CEO Jeff Bezos pointed out that critics thrashed the original Kindle e-reader in 2007, and that device has since become a wildly popular product in its own right that has spurred a whole family of devices.
However, a key difference between Amazon's phone and tablet is that the smartphone market is maturing and is dominated by companies that are heavily invested in it, especially Samsung Electronics and Apple (NASDAQ: AAPL)--and Amazon is late to the game.
Despite the intensely competitive nature of the market, Limp insisted Amazon is not exiting anytime soon. Though he declined to say when Amazon might release new phone hardware, he indicated the online retailing giant is going to keep improving its offerings. "We are going to keep iterating software features to get it better and better," he said. "Each release that we're doing, we're learning. Beyond that, I leave it out there to see what people think."
- see this Fortune article
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