The phone itself is feature rich, notes Oppenheimer analyst Andrew Uerkwitz, which could allow it to be a trend-setter with other hardware companies, particularly as it relates to the camera, and the use of Dynamic Perspective and optical image stabilization (OIS). "With Amazon's growing influence in consumer electronics, we believe other OEMs may follow its footsteps in the adoption of OIS and some form of advanced tracking and sensing subsystem for more intuitive user interface," the analyst penned in a note.
CEO Jeff Bezos also talked about how Amazon's phone, which runs on a forked version of Google's (GOOG) Android benefits from its ecosystem, noting the company has "tens of millions of Prime members," but declined to give an actual amount. Bezos said that the Amazon way of doing things has led to them building a phone on the foundations of the company's hardware expertise, its millions of customers and the Prime ecosystem. "Patience, persistence, and obsessive attention to detail," Bezos said during the presentation, noting that Amazon's mantras have allowed Amazon to be the #1 company on the American Customer Satisfaction Index, an indication that the company has earned the trust of its customers, which Bezos said is a recipe for success.
Pacific Crest Securities analyst Chad Bartley notes that growth of Prime memberships "accelerated the last two years after the Kindle Fire launch." This is an important statement, as Prime members spend roughly four times as much as Amazon customers who do not have a Prime membership. Amazon recently raised the price of Prime, its free two-day shipping service to $99.
Though many were impressed with the phone and the announcement, it's going to be difficult for Amazon to make a dent in the smartphone market, particularly the high-end, which is largely dominated by Apple and Samsung.
According to research firm eMarketer, there will be 1.76 billion smartphone users worldwide in 2014, which is 37.8% of the global phone market. JPMorgan analyst Doug Anmuth isn't expecting much in the way of sales initially. "The phone is currently available through just one carrier (AT&T), and we expect a modest 2-3M in sales this year," Anmuth wrote "We expect Fire Phone sales will be driven by strong integration with Amazon digital media products, heavy homepage
marketing toward Amazon's large existing customer base in the U.S.-especially Prime customers-and help from AT&T."
Despite the fact that Amazon may indeed make money from its Fire Phone, a strategy it has eschewed in the past with the Kindle Fire tablets and Kindle e-readers, Amazon is still intent on using its devices to sell additional goods and content, expanding its ecosystem, particularly with new features.
Bezos unveiled a feature known as Firefly (though the feature is already available on Amazon's iPhone app), which can recognize over 100 million items, such as a CD, song, book, game, food or other item. For a instance, if a user sees a CD, a song from it can be played on Amazon on another music app such as Pandora (P) or iHeartRadio. Users can scan a book using Firefly, and then purchase it.
Features such as Firefly, and the inclusion of one year of Amazon Prime for free could help boost sales, notes JMP Securities analyst Ronald Josey. "At scale, we believe the Fire Phone could reaccelerate North American Media growth given its integration with Amazon's Media and overall offerings," Josey wrote in the note. There's also the potential for additional features to come to later versions of the phone, says Peck, such as payments, mobile ads, and local services.
It appears that Amazon is indeed listening to investors, who punished the stock after the last quarter who became agitated that the company is forgoing profits for market share, for as long as the company has been in existence. The Fire phone is the first step in this new outlook for the company, but it remains to be seen whether consumers will help Amazon on its new mission.
--Written by Chris Ciaccia in New York
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