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From spark to Fire: Analyst predictions for the Fire Phone

Analysts from IHS Technologies, Argus Insights and IBB Consulting joined RCR to discuss the outlook for the Amazon Fire Phone.
Mobile operators have longed for a third device ecosystem that can challenge the Apple/Samsung smartphone duopoly, and some analysts suggest that Amazon may be poised to succeed where traditional hardware vendors Nokia and BlackBerry have not. Even though it is an Android phone, the Fire Phone offers a different user experience and a different set of apps from most Android competitors. Analysts agree that initially that will be a negative for the phone, but they say that over time the Fire Phone could have a significant impact on the market.
John Feland of Argus Insights said he would not be surprised to see double digit market share for the Fire Phone within a couple of years. Feland aggregates and analyzes data from millions of conversations on social media in order to track reaction to mobile devices and wireless service. He noted the investment community’s disappointment with the Fire Phone, but said consumers are showing some interest.
“I think the things that are piquing consumer interest from what we’ve seen so far are free cloud storage for content and the notion of Mayday,” said Feland. Mayday is Amazon’s 24/7 connection to live support via video chat. Mayday has been available over Wi-Fi on Amazon’s Kindle tablets, and now will be offered over the AT&T cellular network as well, with questions about wireless service going to AT&T’s customer care. Feland expects those representatives to get a significant portion of the calls. “Still the number one complaint we see from consumers on smartphones is actually making phone calls,” he said.
The AT&T choice
The Fire Phone will be an AT&T exclusive when it hits the market on July 25. Analyst Jefferson Wang of IBB Consulting thinks Amazon probably made this choice for technical reasons. Since LTE phones still fall back to 3G networks for voice calls, he says Amazon picked the easier 3G network.
“It’s a lot more difficult to work and certify a smartphone when you have a voice situation going from LTE down to a CDMA scenario,” he said. “When you’re going from LTE down to HSPA it’s a lot smoother transition based on standards.”
The Fire Phone supports Band 4, so if T-Mobile CEO John Legere has not burned his bridges by trashing the phone on Twitter, his company could potentially get the Fire Phone at some point. “Obviously this can go onto T-Mobile’s network but I did not see Band 13, which is Verizon, so that would negate that,” said Wayne Lam of IHS Technologies. Lam added that Amazon’s specs list 9 LTE bands altogether, suggesting that several European carriers are in line to get the Fire Phone.
Launching exclusively on AT&T’s network will limit the Fire Phone’s potential in the short run, but our analyst panel pointed out that Apple made the same choice when it launched the iPhone in 2007. Apple saw weak sales to start with but generated a positive buzz, and the iPhone took off as it reached a wider set of carriers.
Making the switch
For Amazon, the initial challenge will be convincing AT&T customers to leave the Apple or Android ecosystem. Even though it’s an Android Phone, the Fire Phone does not come with Google Play, and users cannot easily bring their Android apps with them.
“When you think about $100 in apps that a user has purchased, plus maybe $50 of in-app upgrades that they’ve purchased, and they’ve completed level 500 on Candy Crush Saga, you don’t want to start all that over as a consumer when you move to another ecosystem,” said Wang.
Amazon offers more than 200,000 apps, while Google and Apple each have about a million. “When you look at the arms rase in terms of number of apps, we’re going to reach a point of good enough,” said Wang. “Certainly at a million for Apple and Google, it’s a lot. The arms race is going to be over soon. But the question is which apps are critical, and when you look at the Amazon 200-300,000 apps, if Instagram is not there, is that critical for their target market? Is that critical for people to say: ‘I really want to go over there but I have to have Instagram.'”
Feland thinks that eventually a significant number of consumers will take the plunge. “People are looking for something outside of the Apple ecosystem. And Amazon’s creating their own kind of alternative to the Google universe and the Apple universe,” he said.
Wang said software developers have a clear opportunity to be part of the Amazon ecosystem. He is impressed with Amazon’s pitch to developers through the Firefly developers’ kit.
Firefly can recognize about 70 million everyday objects and offer users the chance to buy them on Amazon. “It’s part of Amazon capturing their own information about consumer behavior and interest outside of what Google collects on us today,” said Feland. “Services that Amazon will build on top of the Fire ecosystem now that there’s a phone part of it as well can drive better insights for both shopping and commerce. I think it will be a couple of years before we see those coming to fruition but I think that’s their Trojan Horse in this case.”
Not a loss leader (yet)
Amazon’s goal with Fire is clearly to drive more mobile commerce and collect the data that surrounds that commerce. But while it waits for this plan to unfold, the company would be more than happy to make some money on the phone itself.
Wayne Lam of IHS tracks component and manufacturing costs, and he said that at its current price points the Fire Phone will make a profit for Amazon. “This is a surprise, it was unexpected,” he said. “But in terms of making money, the business model is not in hardware. I see this as just setting the bar high and they have lots of room to move down in pricing.”
Feland thinks a price cut for the Fire Phone is not a question of if, but when. He notes that even the leading smartphone makers are cutting prices to drive adoption. “The price has dropped on 5s faster than any iPhone ever launched,” he noted.
For Amazon’s most valuable Fire Phone customers, those who love to shop, the Fire Phone may appear less expensive. “If you look at the cost of the device at $199, with the Amazon Prime membership it takes it down to $100,” said Wang. And like the other analysts, he expects that price to come down.

ABOUT AUTHOR

Martha DeGrasse
Martha DeGrassehttp://www.nbreports.com
Martha DeGrasse is the publisher of Network Builder Reports (nbreports.com). At RCR, Martha authored more than 20 in-depth feature reports and more than 2,400 news articles. She also created the Mobile Minute and the 5 Things to Know Today series. Prior to joining RCR Wireless News, Martha produced business and technology news for CNN and Dow Jones in New York and managed the online editorial group at Hoover’s Online before taking a number of years off to be at home when her children were young. Martha is the board president of Austin's Trinity Center and is a member of the Women's Wireless Leadership Forum.