Reposted from www.innovationpov.com
The second in a series of three posts we identify three potential smart phone disruptions that could impact Samsung and Apple’s leadership positions in smart phones.
Amazon: Is a Smartphone Next?
Equity analysts at Citibank, by conducting supply chain checks in Asia, speculated this year that Amazon is making inroads into the smartphone market. With Amazon stating many times that it would get into new markets, one just has to look over the past five years to see how this brand has evolved from its ecommerce persona.
It’s the Kindle Model
Back in 2006, Amazon was rapidly hiring marketing and engineering talent with OS and UI experience as it was diligently working on its first eReader device. Today, Kindle has an installed base in excess of 16 million and the largest share of eBook sales. It is a key platform for Amazon’s services. In fact, Amazon now sells more electronic books than it does printed ones. The brand has driven many large brick and mortar booksellers out of the market, including Borders, and has made things very challenging for Barnes & Noble.
Last year Amazon launched Kindle Fire, a tablet that delivered multiple forms of media and entertainment – print, video, games and music – with Wi-Fi connectivity. Fire was positioned and priced significantly less than the iPad and Android tablets at $199, and targeted at first time tablet owners. The approach was also from a completely different business model ─ as a monetization platform for Amazon’s services and content sales ─ with the hardware sold below cost ─ a vastly different approach than Apple and Android.
To date, over 5 million Kindles have sold since launch. Amazon’s strategy was surprisingly simple. CEO Jeff Bezos positioned the Kindle Fire as a service, not a product, because its owners could access Amazon’s rich inventory of digital goods, much like a cable set top box accesses your TV content today. To make the Kindle Fire even more enticing, Amazon bundled its new Amazon Prime service, along with free shipping on anything members bought on Amazon.com. Kindle Fire plus Amazon Prime plus free shipping meant you could easily get access to content and have a device to watch it on, for less than an annual Netflix subscription.
Today Kindle Fire HD was launched along with Paperwhite and lower pricing on existing Kindles and Kindle Fires. If you listened to Bezo’s today, he was adamant about positioning Kindle Fire as a service rather than a device stating — “Customers are smart. Last year there were more than two dozen android tablets launched into the marketplace. People didn’t buy them. People don’t want just gadgets. They want services. Kindle Fire is a service.”
There is clearly room for a smart phone offering, positioned as a service, rather than as a device!
The ability to offer customers a low margin tablet while selling them higher margin digital goods along with Amazon Prime and free shipping became an inflection point for the company. Amazon went from a merchandizing powerhouse with a bunch of ebooks, music and other goods, to a serious mobile platform competitor with growing customer stickiness.
Is Amazon Positioned for Smartphone Success?
Kindle Fire’s success has clearly fueled speculation around an Amazon-branded smartphone. It is the fourth-ranked consumer electronics retailer in the US, with nearly $8 billion in sales. It currently sells wireless voice and data plans for the four major US operators, and dozens of mobile device brands on three major mobile operating systems ─ Android, BlackBerry, and Windows Phone. It also sells an extensive list of tablets beyond its own Kindle line.
Amazon offers smartphones with service plans as well as unlocked devices. Since it already has deals with mobile operators to sell phones with plans, it should be no issue getting these same operators to support an Amazon-branded smartphone ─ in contrast to the problems that Google has had. Like the Kindle Fire, Amazon could position its smartphone offering at a very low price or even free, essentially giving away devices while making up margin on accessories and content.
The Potential is There
In our view, an Amazon-branded smartphone is more than just a price play. Many smartphones are still heavily subsidized in the US today, and many are free. Even as subsidies relax ─ and they will as mobile operators have a vested interest in getting Americans to pay more for their devices ─ Amazon stands to challenge the market, again, from its business model position, and create yet another conduit for content consumption. By doing so, then yet again create an environment that enables an easy flow of content, intuitive to consumers, and leverage this “bully pulpit” to offer even more content and services, that they get a financial piece from.
In June 2012, Ipsos Vantis created a concept called the Amazon smart phone and tested it through Vantis Files, an Ipsos service that reveals possible new products and services that could succeed in market based on a Market Success Score and Key Measure Scorecard as well as other metrics. We also provided an assessment of why the concept will do well based on the Communication Score module built into the program.
At first look, an Amazon-branded smartphone would not appear to have immediate success as scores showed a lack of wide appeal (top 2 box purchase intent score), as consumers did not think the offer would bring something new and different to the table. However, the pattern of results is indicative of a “Niche” offering, a hidden winner ─ identified using Ipsos’ proprietary Vantis Archetypes framework. The Niche archetype is characterized by a small group of dedicated consumers, who in this case are primarily motivated by a low price point and direct access to Amazon.com with its vast movie, TV show, music, books, and merchandise catalog.
Ipsos Vantis had also tested the Kindle when it first debuted and more recently Kindle Fire, using the same Vantis Files Framework. The results for an Amazon-branded smartphone are strikingly similar to the Kindle, which also was categorized as a Niche offering according to the Vantis Archetypes. If Amazon’s success with Kindle is any indicator of their ability to tap into a niche market, the Amazon Smartphone should be poised for success as well. Kindle Fire on the other hand was identified as an outright winning product with mass appeal.
Amazon has credit card information on over 100 million customers, similar to Apple. It could quickly boost its mobile payments position, taking a transactional cut on every purchase if a buyer selects Amazon’s one-click payments, especially on an Amazon-branded smartphone. The company has kicked out all other alternative payment players, including PayPal.
The company could also negotiate greater revenue sharing deals with mobile operators by increasing sales through Amazon Wireless, still coexisting with carrier-branded stores. This strategy would put considerable pressure on brick and mortar retailers like Best Buy, Staples, and Radio Shack who do a significant amount of their business in phones and service plans. Especially since Best Buy is in a vulnerable position this year.
Amazon could offer additional discounts for online purchases, a re-designed Amazon Prime and a year’s worth of free shipping for buying an Amazon-branded smartphone. Like the Kindle Fire, this would increase customer stickiness. We would also expect Amazon to support Android on its smartphone so customers could continue to have access to Android apps. This means that Amazon will compete head-to-head for market share with major Android brands such as Samsung, LG, and Motorola.
Last holiday season Amazon launched a mobile price comparison shopping app. It encouraged shoppers to check store items with Amazon’s inventory, to find the lowest price.
Retailers scowled, but Jeff Bezos just grinned.
With $10 billion in total mobile spending to date, Amazon has a vision of placing a branded smartphone in consumers’ hands when they’re hovering at the retail point of sale, pointing them back to Amazon.com a high percentage of the time.
– Randy Giusto and Supriya Chabria
FACTS, STATS, AND INSIGHTS TO TWEET
- Amazon- is a smart phone next? >> Tweet <<
- If you listened to Bezo’s today, he was adamant about positioning Kindle Fire as a service rather than a device >> Tweet <<
- Amazon went from a merchandizing powerhouse to a serious mobile platform brand with growing customer stickiness >> Tweet <<
- Kindle Fire’s success has clearly fueled speculation around an Amazon-branded smartphone >> Tweet <<
- Amazon could position its smartphone offering at a very low price or even free >> Tweet <<
- In our view, an Amazon-branded smartphone is more than just a price play >> Tweet <<
- In June, Ipsos Vantis created a concept called the Amazon smart phone and tested it through Vantis Files >> Tweet <<
- The pattern of test results for an Amazon smart phone is indicative of a “Niche” offering, a hidden winner >> Tweet <<
- An Amazon-branded smart phone would put considerable pressure on brick and mortar retailers like Best Buy, Radio Shack >> Tweet <<
- Amazon has a vision of placing a branded smartphone in consumers’ hands when they’re hovering at the retail point of sale >> Tweet <<