Does Amazon's tablet also portend an Android smartphone?

Mike Dano


Amazon.com CEO Jeff Bezos all but confirmed the company's plans to release a tablet device. The news raises an obvious question: Is Amazon's next step to build a smartphone?

Already there are rumors to this effect. The blog Android and Me recently reported, citing unnamed sources, that Amazon is planning a "family" of devices that will include a smartphone, for release in time for the holidays. The report speculates the devices will run Android and AT&T Mobility (NYSE:T) and Verizon Wireless (NYSE:VZ) will provide service. (Indeed, a New York Times story last year hinted at such a move.)

Analysts generally agreed that an Amazon smartphone would dovetail with the company's strategy of expanding from retailer to service provider. "I would bet on it," wrote CCS Insight analyst John Jackson in response to my questions on the topic. "To elaborate a bit, there's a strong argument that a more direct move into hardware beyond the Kindle is overdue. There's a land grab going on to control distribution of pretty much everything you could buy through a touchscreen, whether digital or physical."

Jackson explained that Amazon is one of a small number of companies that--like Apple (NASDAQ:AAPL)--is capable of establishing a model where services reinforce demand for hardware. He said the smartphone market dwarfs the tablet market, and that "I don't think a company like Amazon can be in one category directly without taking a position in the other."

Unlike Samsung, Motorola (NYSE:MMI), HTC and other Android smartphone vendors, Amazon already has a deep and extensive range of Internet services to float across a potential tablet and smartphone. Already, Amazon operates an Android app store, a streaming movie service, a digital music offering, a cloud-based music and document storage service, a digital bookstore--the list goes on.

But what makes an Amazon smartphone particularly interesting--and what should worry the rest of the market's Android players (and wireless carriers)--is the company's ability and willingness to upend traditional business models. For example, Amazon's Kindle ereader bundled the cost of cellular access into the selling price, eliminating the need for a monthly service plan. And the company's new ad-supported Kindle with Special Offers takes $25 off the price of the gadget through the inclusion homescreen deals and sponsored screensavers.

Now, imagine if Amazon were to go all-in on the smartphone market. What would that look like? I imagine an offering built on Android but ensuring Google's (NASDAQ:GOOG) services are not the focus. Instead, Amazon's cloud-based music and movie service would provide the entertainment while the company's vast retail operation would provide the differentiation. The combination of Near Field Communications payment technology, the Amazon Prime program and location technology could create a powerful new offering in the mobile industry.

Will Amazon be successful in the smartphone market? For every upstart's triumph (HTC, Apple) there are an equal number of failures (Sierra Wireless, Neonode). And though Amazon does offer an extensive range of services that could buoy a smartphone, the company's strategy so far centers on securing broad distribution. After all, the company's Kindle ereader is just one prong of an offering that spans Kindle apps for Android, iOS and other platforms.

"I believe that using applications to deliver Amazon services still remains the lowest cost per person reached," wrote ABI Research analyst Michael Morgan in response to my questions. "That being said, if Amazon has some cash to burn, it may serve as a very beneficial learning and development exercise for the company, much as the Nexus line is for Google and all those involved in the project. However in terms of profits, I expect it would be difficult for Amazon to achieve sufficient market shipments over the mid- to near-term."

Based on Bezos' recent comments about a possible Amazon tablet, I think there's a good chance the company will venture into the smartphone market. But I think the company's ultimate strategy might be the reverse of Apple's--Apple offers services to sell hardware, while Amazon might offer hardware to get people interested in its services. --Mike

P.S. Don't forget to check out Fierce's latest special report on 4G network deployments.

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