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Amazon needs to sell its planned smartphone at a very low price

April 13, 2014

The rumors have been flying for a while already, and Amazon's soon-to-be-expected smartphone will have to come with all the latest bells and whistles, along with maybe a feature or two that rivals don't offer.

However, as with most Amazon products, its selling price will ultimately determine if Jeff Bezos' latest idea will be successful or not.

If Amazon wants to make a real difference in the smartphone market, it should double-down on what it's done so well in the past-- offering a product that undercuts competitors.

The only way to really get attention in a world dominated by Apple's iPhone and Samsung's Galaxy S devices is to go full steam ahead with a budget-minded device aimed at the average consumer.

That's because most people won't see an Amazon-branded smartphone as a high-end competitor, said Carolina Milanesi, a wireless industry market analyst.

Working closely with wireless carriers that often subsidize the price of smartphones when subscribers sign up for a two-year contract is just one of the obstacles for smartphone makers. And we all know that AT&T and Verizon are really good at that.

Let's face it-- the smartphone business is an extremely competitive market that even successful technology giants such as Amazon struggle with.

To be fair, Samsung already controls almost 32.4 percent of the smartphone market, while Apple owns another 15 or so percent, according to Gartner. And a dozen other companies are also fighting for a share, but very few of them are actually making a profit on the devices.

BlackBerry might soon go bankrupt, and Nokia couldn't survive without the help from Microsoft, and even device makers like HTC have failed.

Nevertheless, there's certainly some interest in a high-quality, low-price phone and Jeff Bezos knows that. Motorola's Moto G won some points for the amount of hardware and capabilities packed into a device that cost $179 unlocked.

So the question is, can Amazon do better, and if so, at what price? The company has shown its willingness to lose money on hardware to get people to use its services and buy more items through the devices. Amazon thinks that using devices to highlight its video streaming service, app store, or shopping options means more returning customers. It may be right, but time will tell for sure.

Amazon probably won't see the same kind of consumer loyalty for a smartphone as it did with the Kindle Fire tablets, or even the recently-released Fire TV.

Although Amazon doesn't disclose sales numbers per item category, the Kindle Fire got a lot of mileage with its low $200 price tag, and Amazon said last week that it already sold out of Fire TV devices.

But as we all know, there's a lot more competition for smartphones, and although tablets are also a mobile device, people don't treat them like smartphones, which need wireless carriers to power data consumption. Once the carriers are involved, there's more complexity and decisions for consumers to make.

"At first, tablets were a new category and most people were buying Wi-Fi-only versions, so there was no wireless carrier in the mix," Greengart said. "It made it so much easier for them. There was no discussion of how does this fit into the family plan I'm already on?"

Also, most consumers still don't have a clear idea of just how much a smartphone is worth in the first place, and often dramatically underestimate their cost.

Thanks to carrier subsidies given in exchange for long-term service contracts, even decent phones like the Galaxy S4, is offered for free at AT&T when you sign a 2-year contract.

So while the Kindle Fire tablet may have lured in consumers when the original device came out at a low price, that method may not be as effective when it comes to smartphones, which are almost always sold below their inherent cost.

For Amazon to really impress in the smartphone market, it simply can't rely on over-the-top smartphone features. It has to convince its customers they're getting a real bargain worthy of the company's best discount deals. The new device is expected to come out sometime in the fall we're told.

In other mobile news

Cable TV and ISP behemoth Comcast is now hinting that it might be interested in luring away some of its competing mobile carriers' business as well, and it looks like it has a few plans in the works.

In a filing with the U.S. Securities and Exchange commission this week, Comcast said that it plans to dramatically increase the number of Wi-Fi hotspots it operates in the United States, which it said "could make a Wi-Fi-first service, which combines commercial mobile radio service with Wi-Fi, a more viable alternative. And part of that plan is its proposed merger with Time Warner Cable."

Executives from both Comcast and Time Warner Cable appeared before the Senate Judiciary Committee on Wednesday to make their case for the deal, but they had a difficult time convincing some members.

"What we've heard among some of our colleagues is a general sense of skepticism, which is reflected in the general public, about how this deal will really help consumers," said Senator Richard Blumenthal, D-Conn. "The case has yet to be made that consumers will benefit in a tangible, real substantial way."

If the deal is approved, the combined company will be the country's dominant provider of television and Internet connections, reaching roughly one in three American homes.

And the new company would have a nearly 40 percent share of the high-speed broadband Internet market, according to the Consumer Federation of America.

To be sure, such a service would likely be similar to what is currently being offered by upstart carrier Republic Wireless, which uses a proprietary VoIP app for Android to connect calls over the internet, only switching over to cellular networks when a Wi-Fi connection is unavailable.

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It's understandable that the whole idea interests Comcast-- after all, it would bring a lot more business for the company. It also sounds similar to what Google has reportedly been planning as well.

The internet giant is said to be considering offering wireless voice and data to its Google Fiber customers, with calls running over Wi-Fi hotspots on the Google Fiber network when they are available, just like Republic Wireless.

For a company the size of Comcast to offer a Wi-Fi-first service could potentially be disruptive for the U.S. mobile industry, where customers are for the most part divided between the Big Four wireless giants-- AT&T, Verizon, Sprint, and T-Mobile.

Mobile customers can choose from a number of smaller, so-called mobile virtual network operators (MVNOs), but these all license their service from the giants, so the Big Four end up profiting from them anyway. It's a win-win.

By supplementing their reliance on the Big Four's mobile towers with Wi-Fi, however, companies like Republic Wireless have a legitimate shot at wresting away some control of the mobile market and potentially offering customers real value.

Republic's mobile service plans start at just $5 per month. But of course, Comcast's proposal has a catch. Everything suggested in its SEC filing on Tuesday is contingent upon regulators giving the green light to its planned $45 billion merger with current rival Time Warner Cable, a deal that has raised plenty of eyebrows, and is in front of Congress as you read this.

And the merger is no sure thing-- far from it. Critics have long argued that it will dramatically reduce competition in the U.S. wired internet business, and regulators have been reluctant to see that happen in other telecommunications markets as well, namely wireless, where top antitrust officials have studied a proposed merger between T-Mobile and Sprint.

It's little wonder that Comcast would try to paint its merger with Time Warner as creating more competition in the wireless market, rather than less.

In other mobile news

Apple's iPhone 5S is taking a bit on an advantage on a downturn in Android sales but its lead may not last long. But Apple is taking it anyway. And why not. Canaccord Genuity market analyst Michael Walkley said that Android smartphone sales have been lower as new devices get set to launch this month. As just one example, Samsung's new Galaxy S5 will reach consumers on April 11. So the focus of some users is still directed towards Android to a certain degree. Overall, March surveys of wireless stores conducted by Canaccord Genuity point to the iPhone 5S as the top seller in the United States and many other countries. However, Apple's victory may be short lived, according to Walkley. But not everybody may agree with him.

"With our surveys indicating gradually increasing consumer interest in and pre-order activity for these new Android smartphones, we anticipate new higher-end Android smartphones to gain some market share versus the iPhone during the April to June quarter," Walkley added.

But no matter how you look at it, the pendulum could also likely swing back to Apple in the third quarter with the expected launch of the new iPhone 6.

A rumored larger screen size could generate a significant number of upgrades among loyal iPhone users, helping Apple win back lost market share, the analyst added.

"Given strong iPhone and iPad customer loyalty, we believe larger screen iPhones and iPads should create a very strong upgrade cycle during the second half of 2014 given the popularity of larger screen smartphones and tablets combined with new hardware form factors accelerating replacement rates for Apple's growing installed base," Walkley added.

In other mobile news

Today, during a keynote address at Microsoft's Build App developer conference, executive vice president of devices at Nokia Stephen Elop unveiled the new Nokia Lumia 930, a 5-inch Windows Phone 8.1 device that features a 20-megapixel camera and wireless charging. The Nokia Lumia 930 is expected to launch sometime in June for a little under US $600. The new smartphone will be available in a wide array of bright colors including orange and green with metallic trimmings. It will include a 2.2 GHz quad-core Qualcomm Snapdragon processor and its powerful PureView camera has a number of photo editing features via an app called Creative Studio.

And no less than four microphones are built in for a more robust audio-recording experience. Additionally, Nokia added Living Images, which enables users to combine photos and short videos for a more creative cinematic image.


As for Windows Phone 8.1, the updated operating system will feature Cortana, a digital assistant not unlike Apple's Siri or Google Now.

Currently in its beta phase, Cortana is represented by a pair of moving circles and lives in the Windows live tile on the homescreen.

Powered by Bing, it can look up airline flights, sports scores, and even nutritional information. There's also an "Action Center," similar to the drop-down menus for Android and iOS, which allows users to quickly turn on and off settings like Wi-Fi and Bluetooth, as well as a Notifications menu.

The update also has bolstered security and privacy settings like email encryption; a refreshed Word Flow keyboard with slide-type capabilities; and Wi-Fi Sense, a service that suggests and connects to free surrounding networks.

Though the dev preview for Windows Phone 8.1 will roll out to developers this month, it will be available to consumers in the coming months only.

Existing Windows Phone users can receive an over-the-air update to 8.1 this summer. We'll keep you posted on this and other stories as they develop.