Amazon drops price as smartphone fails to set the world on fire

Discussion
Sep 12, 2014

Amazon.com was looking for big things when it began selling its Fire Phone on July 25th. Speculation is the smartphone has not lived up to those expectations as Amazon cut the two-year contract price with AT&T from $199 at the device’s launch to just 99 cents earlier this week.

Industry watchers have pointed out that other smartphone makers have in the past made similar moves, although most not as quickly. One exception was HTC, which cut its contract price from $99 to 99 cents about a month after the launch of HTC First (AKA the Facebook phone).

A major knock from the beginning on the Fire Phone had to do with Amazon’s decision to offer exclusivity to AT&T. Many did not believe the benefits of the phone were enough to cause large numbers of consumers to change carriers. The big question is whether 99 cents will be the right price to convince owners of other smartphones to now make the switch to Fire Phone and AT&T.

Technology critics have not been particularly kind to the Fire Phone. The same could be said for many owners of the device based on ratings shown on the Amazon site where the Fire Phone is currently rated at 3.1 out of five stars. This is by far the lowest rating of any phone in Amazon’s top-25 list of contract phones. The Samsung Galaxy S5 Black is rated at 4.4 stars, the LG G3 Black – 4.5, and the HTC One M8 – 4.4.

Will the new 99 cents with contract price point be enough to significantly increase sales of the Amazon Fire Phone? What lessons will Amazon take from its first entry into the smartphone category and what will that mean for its next generation device?

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12 Comments on "Amazon drops price as smartphone fails to set the world on fire"

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Bob Phibbs
BrainTrust

When the market has determined no interest, cost does not provide the bump in sales. In retail it usually ends up in the dump bin.

Max Goldberg
BrainTrust

Would you rather have an iPhone or a Fire Phone for 99 cents? Most consumers would opt for the iPhone, even if it’s a 5C. The Fire is a rare misstep for Amazon and shows the difference between trying to build a phone vs. a tablet. If Amazon continues to offer the Fire and releases a next generation, it will need more whistles and bells to set it apart from the competition. Otherwise, it’s simply a me-too device that competes on price, which is no way to build a business.

Adrian Weidmann
BrainTrust

Nothing like undermining your loyal customers. What about those folks who actually purchased this device? Another case of a short-sighted, impulsive decision. Why not simply give it away? A wonderful business case of desperation.

Paula Rosenblum
BrainTrust

I have no idea why Amazon thought the world needed another phone. I didn’t get it when it came out, and consumer response just reinforces that opinion.

I understand how they found a “crease” with the Kindle Fire. Customers started out as eBook buyers and segued into a full-fledged Amazon-based tablet. But people already HAVE smartphones.

I didn’t get it then, I don’t get it now and I think the Fire is out.

Steve Montgomery
BrainTrust

No. The Amazon Fire is a “new” phone with very little market acceptance and little cool factor. As Max has pointed out, for the same price you can by an Apple 5C. Admittedly an old model but still with some coolness. The best thing about the Fire Phone may be its ads.

Ed Rosenbaum
BrainTrust

What made Amazon think it should be in the smartphone business? Sometimes it is best to stick with who you are, and not try to be all things to all people.

Bill Davis
Guest
It will increase sales, but I doubt it will be a large enough uptick to impact market share in a significant way as I highly doubt people stick with the phone just because of its price (the value proposition/benefits need to go beyond that). Amazon is extended on several fronts such as moving into the logistics business to reduce dependencies on UPS/FedEx, competing against Google and Microsoft in cloud services, etc., and not everything they do will turn to gold. That being said, I would suspect they are learning from this in ways that will impact and influence the next generation phone and/or something else that may not be readily visible to most of us mere mortals at this time. As long as the stock price is high, forward P/E of 170-plus, Amazon will have the ability to take on projects of this nature. That being said, at some point the market is going to call in the relatively profit-neutral free ride as Amazon will be expected to show greater earnings potential. While Q214 was a loss and Q314 is expected to be, my intuition is that they are setting themselves up for a strong Q414 to stem the tide… Read more »
Gene Hoffman
Guest
Gene Hoffman
3 years 1 month ago

Technology has provided a fast highway to produce more “advanced” products that don’t meet their promises. That effort will continue. Amazon will strive to improve its product and pricing mistakes and come out with a “better” product in its next-generation device. But we should remember that Amazon doesn’t necessarily have the best brains for smartphones.

Ken Lonyai
BrainTrust

I’m really itching to say “I told you so” but I don’t roll that way.

Despite what their fanboys think, Amazon doesn’t always get it right. At this point, it’s safe to make that assumption with the Fire Phone.

I do not see a major turnaround on this unless the next-gen model is substantially different/better. There’s little cachet to owning this device and possibly, it might even draw some negative commentary or embarrassment in certain circles. This is now the second non-tech company to flounder with a specialized phone. In consumers’ eyes, Amazon is a retailer not a tech innovator despite tech accomplishments we may recognize, so would anyone want to own a Walmart phone, or a Macy’s tablet? Doubtful.

I wonder how the early adopters feel. Will they be getting a $198.01 Amazon Prime credit or will this create even more bad feelings towards the device from them?

Shep Hyken
BrainTrust

“If you build it, they will come.” That was the line in the movie Field of Dreams. Amazon broke away from its core business when they moved into the smartphone arena, hoping that their name and excellent reputation would drive sales. Of course there were some other benefits, but they weren’t enough to meet Amazon’s sales expectations.

The smartphone industry has been one that runs from higher-priced phones to basically free, the latter akin to the razor blade business —give away the razor and sell the blades. Give away the phone and get the contract. Amazon’s phone has some benefits to their customers, but are they beneficial enough to get the customer to leave their beloved iPhone, Galaxy, etc.?

Peter Charness
BrainTrust

If at first you don’t succeed, try try again…but try something other than consumer electronics next time!

Naomi K. Shapiro
Guest
Naomi K. Shapiro
3 years 1 month ago
Most everyone has missed the boat on what are the real issues here. I know this because I have been working on this story from a different angle for my work. First, Amazon isn’t going into the smartphone business just because it wants to be in the smartphone business. One of the prominent features of the Amazon Fire phone is an app call Firefly, whereby the user walks into a store, scans the object or barcode or descriptive information of the desired product (which Amazon receives and “identifies” immediately (well, in most cases), and then presents the customer with the order to buy it immediately (from Amazon). This, according to our CEO, should have retailers in a tizzy: “How Retailers Can Avoid Falling Into Amazon Firefly’s Flytrap: Yes, Retailers Can Do Something About Amazon Firefly says Upstream Commerce CEO.” You can also look to Apple as an example just this week of providing the app for bill-paying on their Apple Watch, as well as the need to possess an IPhone or similar in order to use the watch. So my advice in this case to my astute colleagues is: Don’t look at the container, but rather what’s inside. Amazon’s new offer… Read more »
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