Amazon's Fire Phone Is About Survival, Not Burning Apple

NEW YORK (TheStreet) -- Wall Street's worst-kept secret for the past two years was finally announced Wednesday when Amazon (AMZN) lifted the curtain on its Fire Phone smartphone, available for purchase July 25.

Now we watch for whether the Fire will be a success along the lines of Apple's (AAPL) iphone after its debut seven years ago.

There are similarities -- both companies turned to AT&T (T) to be its exclusive wireless carrier. The price is kept lower if you sign a contract, in the Fire's case $199 with a two-year contract. A non-contract phone will be priced at $649, in line with the iPhone 5C.

The debate has been over whether the Fire Phone can burn Apple. Will Apple's stock lag until it is made clear  iPhone sales will not decelerate. Those are all the wrong questions to be asking.

Fire Phone is no direct threat to Apple. Nor will Fire Phone spark additional upside to Amazon stock in the near term. The bottom line is, they both can co-exist -- but only Apple stands to make money on the hardware.

While there are a lot of similarities with Apple's original iPhone launch, including the fact that that Fire Phone will be made available only in the U.S., Amazon CEO Jeff Bezos has no interest in competing with or beating Apple. Apple's moat, or all of its combined competitive advantages, is already too large.

Rather, as with Fire TV and Kindle Fire and so on, Amazon is looking to duplicate Apple's advantages. Fire Phone is just another means of survival.

Consider the other announcement Wednesday on BlackBerry (BBRY). BlackBerry has partnered with Amazon in an app licensing deal that allow BlackBerry devices access to roughly 240,000 Android apps from Amazon's app store.

While the deal is helpful to BlackBerry, it's also an embarrassment that BlackBerry, which had all of the first-mover advantages in the smartphone space, does not have a viable ecosystem of its own. This is what Bezos is trying to avoid.

The problem is, Bezos' never-ending ecosystem/infrastructure buildout will continue to cost Amazon plenty of money while causing many sleepless nights for its shareholders. To that end, whether Fire Phone sells well won't matter.

From what I can tell, the phone's 3-D capabilities and Firefly, the product-scanning feature are groundbreaking additions. But like the Kindle Fire, which was a direct response to Apple's iPad, Amazon's razor-blade model will continue to cut into the company's margins.

The device will sell. But investors shouldn't expect to see the any boost to the bottom line for many more years. The Fire Phone is no different from other launches. Don't forget Bezos' ambitions have been scattered.

He's launched e-books and e-readers. He took the fight to Apple in tablets. He's attacked Netflix (NFLX) with his Prime movie streaming. He's recently launched a music streaming service to take on Pandora (P). He's also working on his Amazon Fresh online grocery service, taking on supermarkets.

None of these projects have boosted the bottom line, where it matters. Investors are getting impatient. 

The Fire Phone is yet another product aimed at increasing Amazon's "stickiness" with consumers. There's no doubt Bezos knows the endgame for his company. He's just not sharing what he envisions Amazon's true earnings potential to be. The fact that the stock is down 17% year to date suggests that he better start talking about Amazon's survival.

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.

>>How Amazon's Phone Is Different Than Anything Else It's Ever Done

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