'Dumb-Phone?' Amazon Jumps Into Apple's Field

NEW YORK (TheStreet) -- When it comes to picking the most likely winner of the ever-growing and at times vile competition that exists within the world of smartphones and mobile devices, you can never go wrong by selecting technology giant Apple (AAPL) against the field.

That group consists of Google ( GOOG), Microsoft ( MSFT) and Research in Motion ( RIMM). While these are certainly formidable opponents for Apple, it's always been like picking Tiger Woods. Because we knew the outcome of the golf match even before everyone teed off, bets were being placed only on the margin of victory.

Bezos Is not Dumb

Though everyone gives their best effort, they know they are playing for (at best) second place. So in this already crowded and seemingly saturated smarphone environment, it gives me pause to wonder why e-commerce giant Amazon ( AMZN) would want to enter an environment where it can clearly see that even Research In Motion ( RIMM) is now hanging on for dear life.

What does Amazon stand to gain by possibly playing for fourth place? According to a recent Bloomberg article, it has more than a puncher's chance against Apple -- except Apple budges very little when it comes to competitive jabs.

TheStreet writer Rocco Pendola wrote wrote an excellent piece recently breaking down his perspective of Amazon's phone aspirations and affirming something that resonated with what I think is precisely Amazon's thought process.

"Know they enemy," Pendola wrote succinctly:

Jeff Bezos is not dumb enough to try and take down the top dog in mobile devices. I suspect a competition with Apple did not enter Bezos' mind when he decided to build the Kindle Fire tablet and that it isn't his plan with a smartphone either.


If that sounds familiar, it's because this is something that every good CEO in an competitive environment should know. It was also said by Sun Tzu in "The Art of War."

If you have been observing the cut-throat industry that is the tech sector, "warfare" and putting each other out of business is the only way to describe their corporate missions. But I also think Bezos is smart enough to see this as an opening to exploit the problems facing not only RIM with its product delays, but also Nokia's ( NOK) relevance.

Furthermore, it is no coincidence this news is coming out as both Apple and Microsoft are due to release new phones of their own. Apple's highly anticipated iPhone 5 is said to be due out in September, while Microsoft's Windows phone is due for release along with its Surface tablet this fall.

Bezos should know that "The Art of War" would recommend using events such as these to Amazon's benefit. If nothing else these rumors may serve to delay any phone purchases from consumers who are now curious as to Amazon's plans.

Potential Challenges

First, if proven true, it should not come as a surprise to anyone to learn that Amazon would release a phone. I mean, for as popular as the Kindle Fire has been, this was the logical next step -- another way to increase its means of distribution.

Furthermore, one has to imagine that while the Kindle Fire was in production, it would have saved Amazon plenty of R&D capital to conduct tests and figure out its potential worthiness during that time since one would think it would be on a similar platform -- just as the iPhone resembles the iPad.

The only question would be, what would Amazon call its phone? May I suggest the "Kindle Flare or the Spark? It has a nice ring to it. But I digress...

Would Amazon be able to gain any traction in smartphones? After all, this was an advantage that Apple had when RIM was the only dominant player within the space after it was able to expunge Palm. However, today along with the usual suspects, Amazon has to contend not only with Samsung but also HTC, which is now the fourth-best-selling name in the market.

So it's not exactly going to be a cakewalk. It's bad enough to have to fight against Apple and Google, now it has to compete on a course where even the fourth best player is ranked.

Another issue is how will it sell its phones? Will it be outside of its website? This is another major hurdle -- its means of distribution.


Apple has a clear advantage where in addition to its Apple retail stores, it also partners with wireless carriers including Verizon ( VZ), AT&T ( T) and Sprint ( S). Amazon would be forced to forge some similar deals - likely against its own online preference.

I don't see how it can afford not to. What would it gain by restricting sales solely to its website except lost revenue? Google tried this with its Nexus One phone by offering it exclusively from its website and that did not work out very well. Also, it would have to consider on a pricing structure. Would it sell the phones at a loss as it does with the Kindle Fire in order to gain share in content distribution?

Bottom Line

While there are many questions left to be answered to clearly outline its phone strategy, I remain reminded of the carnage Apple has left behind when others tried this before and failed -- Hewlett-Packard ( HPQ) and Dell ( DELL) comes to mind.

Clearly, Amazon doesn't care about the road much traveled. "The Art of War" also says, "If your enemy is of superior strength, evade him." Amazon does not appear to want to evade anyone. What does that say about what it thinks of its chances?

At the time of publication, the author was long AAPL and held no positions in any of the other stocks mentioned, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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