What would a branded smartphone mean to Amazon?

With reports claiming Amazon is developing smartphones, let's examine the business case for for Amazon entering a highly competitive, low-margin market.

Amazon is reported to have two smartphones in development. Is Amazon developing a smartphone or is it developing its own smartphone business model?

At this point a better question might be - what is a phone and why would Amazon care?

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Earlier this year a Wall Street Journal report described one of Amazon’s smartphones to have a 3D screen that could project a hologram of objects that gave it a three-dimensional appearance from all angles without special glasses. Since then there were no further reports, until a short summary of Amazon’s smartphone project appeared on Hacker News late Wednesday night from a newly created user account “Helvodka.” It wasn’t much information, but it was enough to spark speculation. The framework for speculating about an Amazon smartphone is Amazon’s existing mobile products and services.

Amazon sells its line of e-readers that it just refreshed last week, with new 7-inch and 8.9-inch tablets and an update to the Kindle Fire HD. These all aren’t really e-readers; the simpler Kindle is an e-reader designed expressly to replace printed media. The Kindle Fire HD and HDX are full-featured Android tablets with a much larger purpose. According to Amazon, the Kindle Fire HD family offers:

deep integration with the world's best content ecosystem—over 27 million movies, TV shows, songs, apps, games, books, audiobooks and magazines.

Kindle Fire OS 3 devices are really multi-purpose Android 4.2.2 devices. Users can install many Android apps via Amazon’s app store, as well as browse the web via Amazon’s Silk browser. The HDX tablets have cameras that Amazon promotes with Skype. A user can watch a video from Amazon on the Kindle Fire tablet or, using Miracast, send the video to a smart TV or large-screen TV equipped with a Miracast HDMI adapter to watch with family and friends.

Certain models offer LTE, so with a data plan from Verizon or AT&T users can take the Kindle Fire tablet and all Amazon’s content with them when they leave home. Using Amazon’s Whispersync service, content can be shared amongst users on a family account and between devices.

If Amazon decides to design and sell a smartphone, it will be an extension of what Amazon has already built. Mobile devices were initially intended to make telephone calls, but people seem to be doing that less and less. In fact, text messaging overtook voice calling on feature phones in 2008, according to Neilsen. Mobile devices today – meaning smartphones and tablets - are really great just as great for consuming digital media as they are for communicating.

The only smartphone feature besides voice calls that Amazon is missing is the greater portability of the smaller smartphone form factor. This is important to Amazon because it wants everyone with any smart mobile device to consume its content. With an Amazon smartphone optimized for consuming Amazon’s content, users will consume more.

Amazon is likely experimenting with a three-dimensional user interfaces and displays to improve how users interact with its websites and apps. Because Amazon is good at working with open source code, as demonstrated by their fork of Android 4.2.2, if it is testing these advanced technologies, it is probably testing on an Android device. But Amazon is unlikely to introduce a smartphone built on these technologies anytime in the near future.

Amazon needs to drive more users to its content on the small and portable smartphone form factor devices. The company is probably testing to determine the best way to do this, be it through a smartphone or better apps for Android and iOS.

However, unless Amazon is certain that a smartphone will sell more of its digital content, it won’t jump into the cut-throat competitive, low-margins smartphone business.

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