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Amazon Should Have Made Fire Phone Free

Stocks in this article: AAPL AMZN

NEW YORK (TheStreet) -- As TheStreet's technology editor Chris Ciaccia noted, Fire Phone is different from anything else (AMZN) has ever done.

The logic behind that statement is sound -- Amazon priced the phone in line with Apple's (AAPL) iPhone. So, presumably, it will not only make money when people buy things on the device, it will make money on the device itself. That's actually counter to Bezos's stated strategy of We want to make money when people use our devices, not when they buy our devices. Either Bezos has decided to satisfy his critics or we're missing something.

Amazon is all about volume. That's difficult for the love the company, hate the stock crowd to accept, but it has worked. It has generated a level of ubiquity for Amazon (and Amazon Prime) unmatched by any other consumer phenomenon of our generation. Even the now bygone Netflix (NFLX) red envelope can't match the omnipresence and staying power of the Amazon cardboard box.

Fire Phone breaks from that strategy. And that's not good.

Without volume, profit on the phone itself (assuming there actually is any) means nothing. And the e-commerce sales and/or Prime memberships the phone generates mean nothing. You won't be able to recognize that profit or revenue on the bottom or top lines. So what's the point? To have a $199 Amazon smartphone sit next to the wholly more attractive iPhone at the AT&T (T) store? Because that's exactly what Fire Phone will do -- just sit there.

It was silly for Amazon to enter the smartphone market in the first place. But it did and nobody was going to stop it. Amazon should have just priced the phone free or at minimal cost to existing Prime members as well as Amazon customers who sign up for Prime in the next six months or a year. Bill it as a limited edition phone that does all of these things the other phones can't do (even if that's untrue). See how that goes. And, if it worked, put out a sequel and do the same thing all over again.

Instead, Amazon decided to ditch the method that, while consider mad by the peanut gallery, simply worked. That's a red flag for me. There's no reason why a significant number of people would want this phone at $199. If it's free, however, you have a differentiator. And a tool that can drive meaninful e-commerce sales.

This unusual Bezos' misstep will ultimately render Fire Phone a non-event and the current hype surrounding it overdone.

--Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is a full-time columnist for TheStreet. He lives in Santa Monica. Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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