Amazon's Fire phone could spark e-commerce evolution

Online shopping giant Amazon is launching its first smartphone – the Fire – but given the crowded market it’s entering, it could turn out to be more of a spark for e-commerce changes than an instant blazing success.

“It’s an expensive ticket to a virtual shopping mall,” says Kevin Restivo, European mobility analyst for tracking firm IDC. “It’ll carve out a little niche for itself, but it’s not going to kick its competitors to the curb.”

Amazon chief executive Jeff Bezos unveiled the long-rumoured device at a press conference in Seattle on Wednesday. The Fire phone, which will be available exclusively through AT&T in the United States starting in July, packs a few features that the company hopes will differentiate it from Apple’s iPhone and the army of Android devices that currently dominate.

• Amazon unveils Fire Phone

The device showcases Amazon’s Firefly, a system that can recognize images, audio, bar codes, phone numbers and other identifying features that then link back to products that can be purchased on the company’s website.

The Fire also has four front-facing cameras that create a 3D-like effect on its screen, which allows users to pan their views by tilting the device. And it has a “MayDay” button that can be pushed to get nearly-instant tech support.

Visual search engine

Reactions to the features were mixed, with industry analysts pointing out that 3D displays have been tried before by other phone manufacturers, with little success.

“3D on smartphones has been a non-starter,” Restivo says. “The technology is not compelling.”

Firefly, however, may prove to be the device’s more intriguing capability. With the phone able to scan and interpret printed text, identify songs by listening to them, or recognize movies and TV shows by watching them, it could become the sort of visual search engine that other phones don’t have as a core function.

It’s this feature that is at the heart of Amazon’s desire to get into the phone business.

“It's more of a relationship product,” says Kaan Yigit, president of consumer trend analysis firm Solutions Research Group. “That is to say, Amazon is offering a mobile digital platform tied to its brand for the great number of people who have a relationship with it.”

In the United States, about 56 per cent of online Americans either browse or buy something on Amazon weekly via PC, laptop or mobile phone, according to SRG. About a quarter have a Prime membership, Amazon’s premium subscription that offers cheaper shipping and access to other services such as video streaming.

Consumers are able to buy products from Amazon on iPhones or Android devices, but there are inevitably hoops to jump through. In April, for example, Amazon eliminated in-app purchases through it Comixology comic book app on Apple devices to avoid having to give the iPhone maker a 30-per-cent cut of sales.

By having its own phone, Amazon will be able to fully control its relationships with customers.

“Coming in a with a smartphone now, when the category is more or less becoming commoditized, is really a play to have something that creates the possibility of driving more business to Amazon by adding one more kind of access point,” Yigit says. “It’s not a high-risk play.”

App issues

The Fire does have a few strikes against it, most notably its comparative lack of applications.

Both the iPhone and Android smartphones boast more than a million apps. Amazon, which is using a customized version of Android to power the Fire, has only about 250,000 - and many are optimized for Kindle Fire tablets, which means the company has work to do to get them into shape for smaller screens.

Worse still, because of the heavily customized operating system, the Fire doesn’t run many of Google’s most popular apps, including Maps or Gmail. Journalists who had hands-on time with it in Seattle were not impressed by the experience as a result.

“It comes off as a little gimmicky and it's missing some features that would make it competitive with phones from the three major operating systems,” wrote Gizmodo.

High-end price point

The phone’s cost could also be a detractor for some buyers, many of whom have come to expect low prices from Amazon. At $649 for the base version without a contract or $199 with a two-year commitment on AT&T, the Fire is selling at prices similar to other high-end smartphones.

Many observers were expecting Amazon to shake things up by offering a lower-cost device, as it did with the $199 Kindle Fire tablet in 2011. The success of that product changed the market, as tablet leader Apple was forced to counter with its smaller and cheaper iPad Mini.

I don’t think this will have a big impact, but neither do I think this is the endgame for them.- Ken Dulaney, Gartner analyst

The higher price of the phone is likely due at least in part to the difficulty of selling such gadgets without going through middle-men wireless carriers, which generally want to tie customers in to long-term contracts. Google has tried a similar direct-to-consumer strategy with its Nexus line of phones, but the results have reportedly been less than satisfactory for the company.

On the upside, Amazon is bundling a free year of Prime with the phone, effectively lowering its price by $100 for anyone who subscribes to the service.

For now, the Fire is also U.S.-exclusive – a spokesperson for the company said Canadians will have to “stay tuned” for further news. While Amazon does tend to expand its products north eventually, Canadians are still waiting for some of them – notably its video streaming service.

All these limitations will likely keep Amazon from making a dent in the near term in the larger global smartphone market, where Android has a nearly 80-per-cent share, followed by Apple at around 15 per cent, Microsoft at 3 per cent and BlackBerry at 2 per cent.

But in the long term, the Fire could be the beginning – the veritable spark – of a closer relationship for Amazon with its core customers.

“I don’t think this will have a big impact, but neither do I think this is the endgame for them,” says Ken Dulaney, vice-president and analyst at research firm Gartner. “Just as they have created more tablets, they will create more phones and expand geographically.”