Among the numbers Amazon.com, Inc. (AMZN) revealed for its holiday shopping season was a very telling statistic: close to 60% of its customers did their shopping using a mobile device.
That number is a very important one, validating Amazon’s continued push to sell Kindle Fire tablets and supporting AMZN taking another swing at the Fire Phone, despite what the performance of the original version did to Amazon stock.
Yes, the phone was a disaster — and deservedly so — but AMZN stock could really benefit if Amazon manages to build a successful mobile platform for its shoppers.
The AMZN Fire Phone Was a Flop
It doesn’t matter how you look at it, the AMZN Fire Phone was a flop — one of the biggest tech disasters of 2014.
The smartphone was priced too high and packed with gimmicky features like its 3D Dynamic Perspective user interface (people seem more interested in how to turn off the 3D effect than in actually using it).
The idea that the device could compete against the likes of the Android champion Samsung (SSNLF) Galaxy S5 or the highly anticipated Apple (AAPL) iPhone 6 that would be released just two months later seems ludicrous in hindsight.
It wasn’t a surprise to anyone (except perhaps AMZN) that the Fire Phone tanked, resulting in a $170 million write-down and helping push Amazon stock down 8% after reporting Q3 2014 numbers You can now pick up a 32GB Fire Phone for just 99-cents on contract at AT&T (T).
However, despite the humiliating start to its smartphone ambitions, AMZN should continue to develop the Fire Phone and release a new version in 2015. Why? Because of that mobile holiday shopping number.
Google’s Android Isn’t AMZN-Friendly
The most popular mobile operating system is Android, a Google (GOOG, GOOGL) property. Android is especially dominant when it comes to smartphones, where it holds worldwide market share of nearly 85%.
Google is very protective of ad revenue, and it seems as though virtually any line of business is fair game as it seeks to diversify.
The transition of consumers from using a PC to access the web to using a mobile device is the reason why Google bought Android and continues to pours resources into improving the operating system, allowing manufacturers use it for free. With close to 85% of smartphones worldwide using Android, Google is able to ensure its apps — like Google Search, Google Maps and Google Now — have a prominent position, helping GOOG to maintain its hold on ad revenue as it shifts to mobile.
In pursuit of diversification, Google has expanded into online shopping, even taking on same-day Amazon shipping with Google Express. Unlike AMZN, which primarily acts as its own retailer (although it does also have a community of third-party sellers), Google Express is largely a web storefront for other major retailers, including Target (TGT) and Costco (COST).
The combination of the rise of mobile shopping, Android’s smartphone dominance and Google’s foray into online retailing leaves AMZN vulnerable to Google’s ambitions.
AMZN Fire Phone as a Defensive Move
Releasing the Fire Phone as a flagship level device aimed at iPhone and Galaxy owners was a poor move, one that investors in Amazon stock paid for.
Amazon’s strategy with devices has traditionally been to provide decent quality, while keeping prices considerably lower than the competition — breaking even on hardware or even selling at a loss in the hope of recouping the money with content sales. That’s why the Kindle Fire is able take a chunk of tablet sales every holiday season, despite not exactly being as popular as more widely functional tablets like the iPad.
AMZN skipped this tactic with the Fire Phone, hoping to instantly be recognized as one of the best and most desirable premium smartphones on the market. Instead, consumers ignored it to the point of Amazon shipping only 26,000 or so in the first month of availability — a dismal launch.
However, there’s room to maneuver when it comes to low-priced or midrange smartphones, where buyers are less concerned about having the latest “it” phone and more focused on functionality and affordability.
That’s the market Amazon should tackle with the next Fire Phone.
Make it a solid performer, a decent-looking device, drop the party tricks and make it cheap — basically, what the original AMZN Fire Phone ended up being, but lose the 3D nonsense. The processor and additional cameras needed to power that UI are expensive, and the feature itself ends up confusing many users. Keep Mayday and Firefly.
If the company can get the formula right and price it attractively at launch (drastically dropping the price afterward like it did with the Original Fire Phone just sends the message that the device is flawed), AMZN stands a chance of getting Fire Phones into a lot of consumer hands.
Most of those potential buyers would otherwise end up with an Android smartphone — which nudges them toward Google Express rather than Amazon. Success means a direct connect to Amazon shopping for these Fire Phone owners, an increasingly important link in a smartphone-dominated world.
And as mobile shopping’s hare of sales continues to creep higher, AMZN will have a proven option in the Fire Phone (just as it does with the Kindle Fire tablets), minimizing the potential damage should Google get more aggressive about expanding further into online shopping
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
