Should Amazon launch SmartPhone?

Connecting Dots

Published in

Agile Insider

6 min readMar 13, 2022

Problem

Should Amazon yet again launch its own smartphone? Having failed terribly in our first attempt?

Background

Fire Phone

Amazon had launched the Fire Phone in 2014, following the success of Kindle Fire but it was a complete failure and the company had to bear the loss of $170 million. The production stopped in August 2015 and there afterward the company has not looked into the smartphone market.

Amazon’s Revenue Model

The major chunk of the revenue comes from e-commerce (both online and third party) ~70% revenue. The e-commerce business is a very low-margin business and with the diverse portfolio, the company has started looking at the verticals with high margins - Amazon Advertising Service, Amazon Subscription Services, and Amazon AWS.

Amazon Subscription Service

Amazon Subscription Services has seen phenomenal growth since its launch in 2017 with the revenue of ~$3B in first 9 months to ~17B in the period of June 2019-2020, compared to the $114B for Google

Amazon has become a digital advertising provider. And not a small one, but among the very few able to compete against the duopoly Google-Facebook.

The advertising is expected to grow at the rate of the 30%-50% YOY provided focus on the business and no threats from the competitors.

With the leverage of AWS, many e-commerce businesses are hosted on AWS and are willing to pay for the advertising on Amazon — a higher margin business compared to e-commerce.

Google Shopping for Everyone

In April of 2020, Google announced its entry into e-commerce providing the merchants free listing on the Google Shopping Platform. Previously only featured listings were added to Google Shopping, which was limited in number.

While Google has a monopoly in the search market. Amazon can gain a monopoly in product searches — provided the organic traffic for the product searches is directed to Amazon.

Rivalry: Amazon vs Google

Opening up the Google Shopping tab to everyone means a boost in the availability of content with high commercial intent. In short, Google will want to contrast Amazon’s domination.

Where Amazon has also become a significant player in the digital advertising space, which threatens Google‘s core business model.

Smart Speakers & Personal Assistant

Voice Assistants like Siri and Alexa will transform behaviour inside the home. At the center of that behaviour is a smart speaker, serving as the hub of a connected lifestyle.
– Andy Chambers, Vice President of Connected Home, Assurant

Though today Amazon enjoys more than 60% market share in the Smart Speakers Segment, there are threats with Google being offered as a free service with Spotify Premium and Apple cutting down the prices.

The Smart Speaker market is expected of $17.8B in 2025 which CAGR of 26%, rising from $4.6B in 2020 and $6.98B in 2021

The leverage in the smart speaker segment can help Amazon in forcing users to stick with Amazon’s Eco-System — FireTV, Prime, Alexa.

Introducing Amazon’s SmartPhone

Amazon’s Alexa Voice Assistant has been created keeping in mind the interoperability on all platforms — Google’s Android and Apple’s IOS.

According to the latest reports by the EU antitrust watchdog, the customers have raised the concerns that the smart devices have been following ill practices -

Firstly, the smart devices are being prevented from installing the second voice assistance
Secondly, the voice assistance providers are promoting their own services and those of the third parties via default setting, thus restricting the rivals
Thirdly, the data captured by the voice assistance are being used for promoting own products and service as recommended one’s

Also, have been reports for Google prevented from pre-installing their services, including the Play Store and the Google Search engine, to all manufacturers who do not commit to not develop or selling devices that run Android, which effectively reduces the opportunity to develop Android terminals by giants like Amazon also interested in using their own services

With the rising competition over E-Commerce, Advertising Platform, Smart Speakers — Google enjoys leverage over Amazon by having smartphones and other devices with AndroidOS, wearOS, etc.

Google can use AndroidOS as a long-term strategy to benefit -

With the AndroidOS, the Google Assistant comes as the default voice assistance, promoting its own services for Listening to Music (Youtube Music) — the major use case for most users
With the AndroidOS, Google comes as the default search engine — with Google’s entry to e-commerce, it can challenge the dominance of Amazon as the default Product Search Platform and shopping destination
The Google Search data and user searches power the revenue of the Advertising Service — which Google would never let any other party like Amazon make use of.
Google can gradually challenge the dominance of the Amazon Alexa Devices and grab the major markets share by promoting the users to use Google’s Ecosystem for all their needs — Google Home, Chrome-cast, and Google Voice Assistant.

Alexa at the heart of Amazon’s Smart Phone

The smart assistants on our smartphones are going to become more and more important. They already tell us when we should leave for work to avoid traffic, alert us to our next meeting and remind us to buy flowers for Mother’s Day. They’re only getting smarter.

The good news for Amazon is that Alexa is one of the best personal assistants out there.

Alexa could be used as the default Voice Assistant — making purchases on Amazon, increasing the revenue for Amazon’s Digital Advertising Service, playing the music on Amazon Prime, watching the favorite shows on Amazon Prime, making calls, and sending messages using Amazon Alexa.

The FireOS has evolved over the years with success in the Alexa, FireTv and Kindle Devices — however, Amazon needs to get the license for the Google’s Suite Service like Google Map, Google Play Store, Google Chrome, etc (However, for the longer term, we need to look at possible collaborations with Microsoft/others or build our own suite and marketplace for application development)

Conclusion

In order to win the ongoing war with Google over the dominance over e-commerce, digital advertising services, smart speakers, and voice assistance, Amazon should launch its own smart-phone, keeping in mind the following -

Alexa needs to be the heart of the smartphone.
Amazon needs to license Google’s services, such as Gmail and Maps. Access to the Google Play App store will allow customers to do more with their phones.
Amazon can offer a free year of Prime with each service, which it did originally.
The phone needs to cost much less than the original, and shouldn’t be exclusive to a wireless carrier