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Amazon (AMZN - Free Report) is making a comeback into the smartphone market. It’s a small move (or experiment) at this stage, more like testing the waters with a new strategy.
So there are just two devices on offer that it’s not making itself. Amazon is selling the Moto G4 and Blu R1 HD at a $50 discount if you are already a Prime member or agree to buy a Prime subscription as well for $99. That’s not all; you also have to agree to see Amazon ads on your lock screen and understand that the phone will come with un-installable Amazon apps.
This wouldn’t be a big deal if they were just a handful, but Amazon offers a whole lot of things now and figures that it can’t be fun having to locate and log into each app separately. So guess what – whether you’re looking for a bit of shopping or Kindle, the Amazon Underground app store, or Audible, IMDB, Amazon Video, Goodreads, Prime Now, Alexa, Amazon Music, Amazon Drive or Amazon Photos, all you have to do is sign in once and you’re set to use any Amazon service on the device.
It’s not clear whether Amazon has an agreement with the phone makers or its marketing arrangement with them allows this flexibility, or if it’s simply buying the phones and re-selling them after pushing its own stuff on board (this appears unlikely since changing the nature of the phone and commercializing the effort should require some sort of go-ahead from the manufacturers). But one thing’s for sure, this is far smarter than the Fire phone, which ultimately led to a $170 million write-down.
In this case, Amazon is taking a $50 hit per device, but should more than make up if it wins a few Prime subscribers or gets existing subs to buy more from Amazon. Prime members anyway try to use Amazon services as much as possible and Consumer Intelligence Research Partners (CIRP) says that Kindle and Fire device owners spend twice as much on Amazon as other people. So recovering what it’s giving away in discounts should be a piece of cake.
The search leader offers a free OS that is basically a platform for app makers and phone makers to earn from. In exchange, it insists on the pre-loading of a bunch of free apps and earns from them only when you use them to buy things (Play Store) or watch video (YouTube, Play Movies), or listen to music (Play Music), or look for information (Search) or directions (Maps) or check mail (Gmail) or the calendar.
For a Prime member, it makes sense to do as much of these things using the Prime login to maximize the benefits of the subscription. So Amazon’s offer immediately hits Google services like Play Store, Play Music and YouTube. Search is affected to the extent that product search will obviously be taking place on Amazon and nowhere else. It potentially also allows Alexa to take over from Google Now.
That said, the pre-loaded Google apps aren't being removed, so customers can use them if they wish. Also, neither of these devices are much of a hit and Lenovo is struggling for a strategy to lift its Motorola phone sales. So there likely won’t be a huge impact on Google just yet. But if there is even an average uptake of these phones, Amazon could extend the offer to other struggling devices with acceptable specs. It’s highly doubtful that high-end device makers will allow Amazon to take over their phones.
Summing Up
This could be an effective strategy to expand the Prime subscriber base with a negligible impact on Google in the near term. Amazon is also unlikely to have any impact on high end device makers like Apple (AAPL - Free Report) or Samsung. If Microsoft (MSFT - Free Report) does launch a Surface branded smartphone, it would most certainly be a high-end device that Amazon would be shut out of.
So while Amazon’s phone strategy can have a ripple effect on Google, there likely won’t be a wave. And the rest of the market won’t feel the impact.
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Will Amazon Take Over the Android Phone?
Amazon (AMZN - Free Report) is making a comeback into the smartphone market. It’s a small move (or experiment) at this stage, more like testing the waters with a new strategy.
So there are just two devices on offer that it’s not making itself. Amazon is selling the Moto G4 and Blu R1 HD at a $50 discount if you are already a Prime member or agree to buy a Prime subscription as well for $99. That’s not all; you also have to agree to see Amazon ads on your lock screen and understand that the phone will come with un-installable Amazon apps.
This wouldn’t be a big deal if they were just a handful, but Amazon offers a whole lot of things now and figures that it can’t be fun having to locate and log into each app separately. So guess what – whether you’re looking for a bit of shopping or Kindle, the Amazon Underground app store, or Audible, IMDB, Amazon Video, Goodreads, Prime Now, Alexa, Amazon Music, Amazon Drive or Amazon Photos, all you have to do is sign in once and you’re set to use any Amazon service on the device.
It’s not clear whether Amazon has an agreement with the phone makers or its marketing arrangement with them allows this flexibility, or if it’s simply buying the phones and re-selling them after pushing its own stuff on board (this appears unlikely since changing the nature of the phone and commercializing the effort should require some sort of go-ahead from the manufacturers). But one thing’s for sure, this is far smarter than the Fire phone, which ultimately led to a $170 million write-down.
In this case, Amazon is taking a $50 hit per device, but should more than make up if it wins a few Prime subscribers or gets existing subs to buy more from Amazon. Prime members anyway try to use Amazon services as much as possible and Consumer Intelligence Research Partners (CIRP) says that Kindle and Fire device owners spend twice as much on Amazon as other people. So recovering what it’s giving away in discounts should be a piece of cake.
How Does This Affect Alphabet’s (GOOGL - Free Report) Google
The search leader offers a free OS that is basically a platform for app makers and phone makers to earn from. In exchange, it insists on the pre-loading of a bunch of free apps and earns from them only when you use them to buy things (Play Store) or watch video (YouTube, Play Movies), or listen to music (Play Music), or look for information (Search) or directions (Maps) or check mail (Gmail) or the calendar.
For a Prime member, it makes sense to do as much of these things using the Prime login to maximize the benefits of the subscription. So Amazon’s offer immediately hits Google services like Play Store, Play Music and YouTube. Search is affected to the extent that product search will obviously be taking place on Amazon and nowhere else. It potentially also allows Alexa to take over from Google Now.
That said, the pre-loaded Google apps aren't being removed, so customers can use them if they wish. Also, neither of these devices are much of a hit and Lenovo is struggling for a strategy to lift its Motorola phone sales. So there likely won’t be a huge impact on Google just yet. But if there is even an average uptake of these phones, Amazon could extend the offer to other struggling devices with acceptable specs. It’s highly doubtful that high-end device makers will allow Amazon to take over their phones.
Summing Up
This could be an effective strategy to expand the Prime subscriber base with a negligible impact on Google in the near term. Amazon is also unlikely to have any impact on high end device makers like Apple (AAPL - Free Report) or Samsung. If Microsoft (MSFT - Free Report) does launch a Surface branded smartphone, it would most certainly be a high-end device that Amazon would be shut out of.
So while Amazon’s phone strategy can have a ripple effect on Google, there likely won’t be a wave. And the rest of the market won’t feel the impact.