Amazon's expected smartphone already faces skeptics

If Amazon announces a smartphone on Wednesday, as is widely expected, it will face an avalanche of skeptics.

In a smartphone market heavily dominated by Android, iPhone and new sub-$100 unlocked phones, it's clear that an Amazon smartphone wouldn't be focused on grabbing smartphone market share any time soon.

More likely, Amazon wants to offer a quick, mobile way to sell its online goods to its 250 million customers.

A teaser video that Amazon released suggests the new phone will have 3D capabilities, which could be tied to the user's gesture or eye movements. With that ability, Amazon might be able to proffer its online products in all their 3D glory, without the need for a user on the run to click on an image to rotate it and examine it, as already happens when using tablets and desktop computers. This way, Amazon reaches its customers wherever they are -- in their cars or even while they're shopping hurriedly in a mall, a place where Amazon might lose to a competitor.

But that assumes many things about Amazon's 3D concept. "Gesture-based controls with 3D could be really gimmicky, " said Julie Ask, an analyst at market research firm Forrester.

"I'm expecting something completely nutty from Amazon's announcement, even though I don't know what it would be yet. But it has to be nutty to drive adoption," Ask said. "Giving away a phone for free wouldn't be enough to make it a success."

It's possible Amazon will give away its new phone for free or offer free video or music content, but such approaches still won't easily persuade current users of Android phones or the iPhone to switch to a new Amazon phone. That's especially so since users by now have loaded plenty of third-party purchasing apps on their phones giving them the ability to buy from various retailers. Today's phone users might already have loaded Amazon's smartphone purchasing app or its Kindle reader app.

And 3D might not be that compelling. "This wouldn't be the first time we've heard of 3D phones," added Ramon Llamas, an analyst at IDC.

HTC's Evo 3D and the LG Optimus with 3D "didn't last long on the market because there was a serious lack of content around them," Llamas added. "Maybe Amazon has a trick up its sleeve tying 3D to shopping, but that's a lot of ifs and a lot of investment by Amazon to make it work."

Whether the 3D actually works or not, the phone's link to its shopping site is what's central to Amazon.

Amazon's likely smartphone is "more important for Amazon and the war of the ecosystem [of services and products offered via devices] than for the phone industry itself," said Carolina Milanesi, chief of research at Kantar WorldPanel. "It is clear that whatever the phone is, it has to be driving more sales to Amazon and more loyalty to the brand. My main question, despite how good the phone will be, is the price and perceived overall value behind the Amazon ecosystem. Maybe it makes my shopping experience awesome, but what else does it do? How does it stack up to the iPhone and Galaxy S5?"

Further complicating the challenge Amazon faces, both Llamas and Ask noted that buying things with smartphones is far down the list of things people say they do with their phones.

Customers said in various surveys that their top use of a smartphone is voice and written communications in text, email or instant message, followed by consumption of media, including songs and videos, sports scores, stock market reports, weather and maps.

"Transactions and shopping is still a distant third" in the ways smartphones are used, Ask said.

"Shopping is not today a central feature of a smartphone and because this is an Amazon phone, the central core value is going to be shopping," Llamas added. "With that kind of setup, I wonder if the masses will flock to this device."

Tablet users, including those with Amazon's Kindle tablet line, make purchases, but that's because their screens are bigger than smartphone displays, Llamas said.

"Amazon is going after its customer base, much as they have with Kindle tablets, to make Amazon sticky with its users," said Jack Gold, an analyst at J. Gold Associates. "If they can accomplish this goal with a smartphone as they have with Kindle tablets, then Amazon doesn't have to make any money off the devices, nor do the devices need to be bleeding edge. Any evaluation of an Amazon phone should be along the lines of what advantages it brings to Amazon's business model and not how it stacks up with the general market for phones."

Gold, and just about anybody following the smartphone market, is curious about what compelling services Amazon will offer with the device. Some have suggested Amazon will double down on its Mayday button -- introduced with the Kindle Fire HDX tablet last year -- that provides 24/7 live tech support directly on the device.

But a Mayday button doesn't seem like enough to lure customers away from other platforms. Ask suggested that if Amazon is planning to offer plenty of free video and other content with the device, it should heed the lessons learned by ESPN years ago.

In a well-documented failure eight years ago, ESPN abandoned its Mobile ESPN initiative just seven months after launching it.

ESPN tried to sell customers an ESPN-branded phone made by Sanyo for $199 that was complete with sports menus and news that cost $65 to $225 each month. The sports network found it was hard to get customers to switch from their existing carriers, and to pay that much for the premium content. Some reports, including one in BusinessWeek in 2006 put ESPN's loss at $150 million after signing up just 30,000 customers, but Ask believes ESPN's loss on the project was many times higher.

"They actually tried to sell service and phones to people before they finally said 'we suck at this,' " Ask said.

But maybe the ESPN failure isn't a good example, since Amazon could be planning a free phone, with lots of free services and content -- all in 3D. Whatever Amazon offers, analysts agreed it is going to have to be big. Nutty big.

"I'm hopeful Amazon succeeds with its smartphone, partly because I love seeing exciting, new, disruptive things," Ask said. "I would love to see them do something disruptive, but the odds are against them selling a million phones any time soon." Her skepticism was matched by others.

"Amazon will have a very hard row to hoe as the smartphone market is littered with many company carcasses of those who have gone for it and failed," said Patrick Moorhead, an analyst at Moor Insights & Strategy.

"They are a bit different, as their primary business is retailing, which can accept very low margins, and electronics, subsidized with music, movies and games, Moorhead said. "Amazon, with their, 'do different' announcement invitation, better do so, or they will get panned by press and analysts."

This article, Amazon's expected smartphone already faces skeptics, was originally published at Computerworld.com.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is mhamblen@computerworld.com.

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This story, "Amazon's expected smartphone already faces skeptics" was originally published by Computerworld .

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