Why Amazon Shouldn't Make a Smartphone, But Will Anyway

NEW YORK (TheStreet) -- Rumors abound that Amazon.com (AMZN) will come out with its own smartphone. In the long run, that's probably a questionable venture, but Amazon will do it anyway. It's inevitable. Here's why.

Recently I saw a promotional line about a newspaper. "You read it; it doesn't read you." In the Internet age, those days are over. Devices that just sit there and provide a service no longer work in business models that depend on collecting information about how the customer is using the device.

Because modern smartphones help a particular tech giant pry into a customer's preferences and habits, it's important to create a desirable public image for the company and an attractive environment (user interface) on the smartphone. That's the game of our times and requires great expertise.

In contrast, consider that we don't really have too much allegiance to particular hardware. Smartphone hardware is very miniaturized and built in far away places. The vendor can control the tactile feel, the display quality, and some other human factors, but eventually every company follows the best, winning designs. If Apple's (AAPL) iPhones were made by a different company than Hon Hai/Foxconn, would we care?

For example, ask yourself who makes the hardware for the Amazon Kindle Fire HDX tablet. Few know and fewer care. (Answer: Asus.) That doesn't mean that hardware advances mean nothing. But if customers made a choice on hardware alone, the iPhone 5s (with its 64-bit processor, Touch ID and a secure enclave in protected hardware, not software) would totally dominate the market.

The Pledge

What happens in the smartphone marketplace is that we pledge allegiance to a particular company. The carriers battle in the background to be the preferred pipe and Asian companies battle for rights to make the hardware, but the truth is, we pledge allegiance to Apple, BlackBerry (BBRY) Google (GOOG)or Microsoft (MSFT). Those who have a distaste for Apple fall into the Android camp and select the hardware maker that pleases them the most.

Samsung (SSNLF) knows this. The company struggles with its efforts to please the customers, but it knows that the customer's heart is really with Android, not their hardware. That's why Samsung is desperate to divorce itself from Android, according to Digital Trends and Business Insider. Samsung wants to create its own customer relationship with a home grown user experience and be loved for it.

In the end, that's why Amazon will probably make its own smartphone. That's what tech giants do these days. It's why you've heard rumors about a Facebook (FB) smartphone.

The Demands of Customer Relationship

The downside of making a smartphone is the implied social contract with the consumer. It's one thing to deliver books, magazines and movies on a Kindle Fire HDX, but it's quite another thing to be the sacred holder of the customer's personal life.

The contact list, the calendar, the reminders, the family photos, the text messages, perhaps credit card numbers, and the browsing history constitute deep and sensitive information about any customer that requires vast experience to protect. The responsibility to deliver emergency calls on demand with a weak signal is great. The protection of that data while the user has the smartphone and after it's been stolen is a severe responsibility.

Another serious responsibility is the curation of malicious apps, via an app store, that might harm the customer. Users expect a richer and more free-wheeling environment for smartphone apps than tablets. In the end, it's the company that sells a smartphone under its brand that takes responsibility for what apps do for and against the customer.

In addition, there will be onerous and plentiful requests from the NSA for all kinds of data, putting Amazon in the uncomfortable position of being both our favorite shopping place but also a cooperating trafficker of all that personal data.

Customers can be particularly touchy about the way this data is handled, and they often have curious expectations of the holder of their data that a court, unpredictably, might agree with. Down the road, one could surmise that Amazon might face its own class action lawsuits.

The Decision

Amazon will be deciding whether its image as a company should change. Does the company want to remain a generally well liked, efficient supplier of goods and services? Or does it yearn for that pledge of allegiance? The price is holding our lives in the balance.

From what we know now, it seems Amazon will make a smartphone and ask for our pledge. The phone may not make a lot of money, but the company will have achieved its goal of further tunneling into customer hearts and minds, habits and needs. It's very alluring. In the end, however, Amazon may wish it never walked this risky path.

But there's no stopping progress.

At the time of publication the author was long AAPL.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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