Why Amazon's Fire Phone is too much, too late

The market is saturated. Just about every American who will buy a smartphone has already declared loyalty to either Google or Apple, and people are loath to switch.

By MSN Money Partner Jun 20, 2014 10:46AM

An Amazon representative shows off the 3D map features of the company's new Fire smartphone at the company's campus in Seattle © JASON REDMOND/Newscom/ReutersBy Christopher Mims, The Wall Street Journal

Please allow me to be the last to tell you that Amazon (AMZN) unveiled a phone, and among the first to tell you why no one will buy it.

The Wall St. Journal on MSN MoneyIt's not because the Fire phone is packed with a range of what can only be called parlor tricks -- that is, 3-D interface gewgaws of limited utility. Nor is it because the most interesting thing about the phone -- a button that lets you buy anything you see in real life on Amazon -- is probably more useful for Amazon than for its customers, and already exists on other phones anyway.

The central problems with the Fire, the factors that will kill its sales as surely as they have held Microsoft's (MSFT) Windows Phone to single digit market share in North America, are the following. (Microsoft owns and publishes MSN Money.)

1. People are loath to switch from the phones they already have, and in the process abandon all the apps and media they've bought.

2. The North American market for smartphones -- and especially the market for high-end smartphones like the Fire -- is heavily saturated, which means there are hardly any new users out there who might adopt the Fire as their first phone.

3. Fire can't access the existing pool of Android apps. It's missing critical ones like Uber (Bezos says it's coming) and Snapchat (no word on when it will appear).

Taking these in reverse order, let's start with the "app gap" between Fire and its competitors.

The reason Amazon's phone has about a tenth as many apps as the iPhone or Android phones is that, though it's based on Android, Fire OS is heavily modified. For this sin, Google (GOOG) has banned it from accessing the Google Play store, the official repository of Android apps.

Amazon is betting that developers will close this "app gap" quickly, and give the Fire all the capabilities its competitors have. But developers won't jump on board with Fire OS unless people switch to it -- and they probably won't. It's the classic chicken-and-egg problem of building an ecosystem of software around any particular piece of hardware.

As Damon Darlin succinctly outlines in The New York Times, switching from one phone to another is a frightening and difficult enterprise even under the best of circumstances. There are all those contacts and photos to be transferred (or, more likely, lost) and then there's the not-trivial matter of learning a whole new interface.

Add to this the fact that the U.S. smartphone market appears to be nearly saturated. The market-research firm IDC projects that in 2014, growth in the North American smartphone market will slow to single digits.

In other words, barring the usual churn of young people entering the market, pretty much every American who is going to get a smartphone already has declared their loyalty to either Google or Apple (AAPL), and both are working like hell to keep people locked into their ecosystems, getting us to buy media and apps that work only on Android or iOS.

All together, these are a major problem for what appears to be Amazon's larger (or perhaps backup) strategy for Fire: get people to equate Amazon's services with a particular service, by way of a piece of hardware. It worked with books -- Kindle is an object, a marketplace and more or less synonymous with e-books. It worked slightly less well with tablets -- does anyone really equate the company's tablets with streaming media?

And it won't work at all with phones.

Fire's big gimmick, the "Firefly" button that turns any real-world object into a "buy" button for its equivalent on Amazon, already exists in the Amazon app for iPhone. (It's called "Flow.") If we were reliving the history of the Kindle, the Fire would convince some people to bind themselves exclusively to Amazon's services, and would have even more utility as an advertisement for those same services in the form of apps on Android and iPhone.

But without adoption of the Fire in the first place, it can't succeed even as an advertisement for Amazon's attempt to turn the real world into one big Amazon shopping cart.

More from The Wall Street Journal

Jun 20, 2014 1:02PM
Only mistake Amazon made was using AT & T, that will definitely keep people away
Jun 20, 2014 3:01PM
Hey MSN.....how about a comment section on the emails that the IRS claims to be lost???
Jun 20, 2014 3:21PM
The writer is probably correct.

I purchased a 1st Gen Kindle Fire a couple years ago. It was not bad, but I was dismayed at how little control I had over the device. I couldn't customize it, at all. I quickly lost interest in it, and purchased a Galaxy Tab 7.0, and have been much happier. The lack of apps on the Fire was also disappointing, compared to Google Play.

My personal phone is a Galaxy S3, I also have an iPhone 4S as my work phone. IMHO, the iPhone suffers from similar issues as the Fire. I can't customize it NEARLY as much as I can the Android phone. I wouldn't buy an iPhone, or a Fire, period. I like to do what I like to do with my device, not what someone else wants me to do within a very narrow confine.

Point simple. Overpriced device on an overpriced wireless provider. 

I am an Amazon groupie but think this Fire phone will prove to be a major failure for Amazon. Do they really expect that current Prime members who aren't using ATT will rush to dump their current wireless provider to buy one of the most expensive phones on the market and then be glued to a contract with ATT just to be able to push one less button to get their Amazon fix? Ummm...I think not. Best decision I made was to buy an unlocked Nexus phone (s) and activate on a T-Mobile prepaid plan. Have saved literally hundreds of $$$ vs. ATT or Verizon.  Yippee!! And guess what? I have never had a problem satiating my Amazon buying addiction . Which begs the question of why anybody with an Amazon fixation needs an overpriced cell phone on an overpriced wireless network. If Amazon had any brains they would have issued a price competitive, unlocked  phone that buyers could put into service on any of the major wireless carriers. Dumb. Really, really dumb.
Jun 20, 2014 6:30PM

Google 5 =$350

Iphone 5 = $550

Amazon phone=$649

All without a service plan

Jun 20, 2014 2:33PM
I still don't understand what exactly Amazon is.  What do they do?  Besides make phones now like Motorola and LG? 
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