After its attempt at a smartphone largely flopped, Amazon has decided to scale down some of its hardware efforts, according to The Wall Street Journal, which reported on Wednesday that Amazon had recently laid off dozens of engineers from the Fire Phone team. The team was a part of Amazon's Silicon Valley-based hardware-development center Lab126, a team that hadn't seen layoffs in its 11 years of existence.
The layoffs were paired with a key executive from the division leaving for Google earlier this month -- Amazon's CTO for devices Jon McCormack.
While the fallout may be a bit of a delayed response from the Fire Phone's failed launch, it's certainly no surprise that these efforts were going nowhere. Even when Amazon lowered its price for the Fire Phone from $199 to $0.99, nobody was biting.
But just because Amazon seems to have admitted defeat in the smartphone realm, doesn't mean that it's completely over hardware.
"Devices are still very much part of the company's strategies," said Morningstar analyst RJ Hottovy. "But I think new innovations will be more aligned with their core e-commerce and AWS [cloud computing] platforms. I still think devices like Echo -- which can drive e-commerce and AWS benefits -- and the Dash are the types of devices you can expect from Amazon going forward, though the Kindle Fire will still likely have a place in their product offering as well."
So no, Amazon likely isn't saying goodbye to devices altogether, but perhaps it's realizing that it's best for the company to stick to what it does best: e-commerce.
The Kindle Fire closely ties into its e-book sales, and the Echo and Dash tie into its Prime program with re-ordering capabilities.
"Devices generally are a distant third in Amazon's priority," Piper Jaffray analyst Gene Munster said. "It's retail, AWS, and then devices."
Munster added that one of the reasons Amazon may have more success with its other devices is that they function in less saturated markets. The smartphone market was already clearly dominated by Apple (AAPL - Get Report) and Google (GOOG - Get Report) (GOOGL - Get Report) when Amazon stepped in.
The e-reader had yet to be dominated when Amazon introduced the Kindle, and even the virtual assistant device is fairly unique. Apple, Google, and Facebook's (FB - Get Report) own virtual assistants exist in software, which makes them dependent on the technology of the phone or laptop they act in. The Echo, on the other hand, is not dependent on the battery life or microphone power of a smartphone.
"This active assistant is something that just still hasn't been perfected, and given their place in the home, I think [Amazon's] in a great spot for it," Munster said. "The Echo has a potential to really be mainstream. It sounds crazy, but it could change people's lives."
Moving forward, though, if Amazon truly wants to become a hardware juggernaut, there are a few more things it needs to consider, according to Needham & Co. analyst Kerry Rice.
First things first, the devices need to not only tie into e-commerce, but specifically tie into Prime. "If Amazon wants to drive transaction volume, everything it does should be driven with Prime as the main focus," Rice said. Prime members constitute an extremely valuable and growing portion of Amazon's business.
On top of that though, Amazon should consider revisiting its approach to the developer ecosystem. What Amazon currently does is run a modified version of Android on its own platform with its own app store. But it has had a lot of difficulty getting developers to create apps specifically for Amazon.
If Amazon integrated the Android ecosystem into its devices, it would open itself up to many more apps, making its devices much more attractive to consumers.
"Modifying Android to the point of requiring developers to create a third app will always place Amazon's ecosystem at a disadvantage," Rice said.