There have been mixed reactions to Amazon’s recent announcement of the Fire phone. After the initial plaudits associated with the four-camera “3-D” configuration, the object-identifying Firefly feature and the Mayday customer service channel, observers appear disappointed with the device’s high price and consequent difficulty in attracting customers who would use the phone as a shopping conduit for all their product- and service-related needs. Indeed, the imaginary conversation between an observer and Jeff Bezos might have progressed like the conversation between Christopher Pike (Bruce Greenwood in Star Trek Into darkness) and Spock (Zachary Quinto).
Bezos/Spock: The phone has all these fabulous features.
Critic/Pike: That’s a technicality.
Bezos/Spock: (I’m a Vulcan sir). We embrace technicality.
Critic/Pike: Are you giving me attitude?
Bezos/Spock: I am expressing multiple attitudes simultaneously. To which are you referring?
Regardless of how such a conversation might have proceeded, one thing is clear – not everyone is enthusiastic about the phone and its prospects.
One can think about the Fire phone from two different perspectives. The first is that of a customer who already has the device and what (s)he does with it; and the second is that of a potential customer who does not as yet have the phone. From the first perspective, for owners of the device, the value proposition is clear: the iPhone and its subsequent imitators improved the experience of using a mobile phone. This was important since consumers were not yet familiar with a smartphone and its various capabilities. Fast forward a few years and the mobile-phone customer today is quite familiar with the phone’s functionality per se. What the Fire device brings to the table is expanding the scope of what that phone can be used for. In particular, it focuses on the aspect of consumer behavior that is closest to Amazon’s business – shopping for products and services.
This brings us to what exactly the consumers shop for and how Amazon can benefit from customers using the Fire phone as a purchasing platform. In terms of products, there are several categories of interest – (i) routine, frequently purchased items; (ii) occasional, bigger-ticket items; and (iii) impulse purchases. Traditionally, Amazon has been best suited for purchases in category (ii) – books, DVDs, consumer electronics, appliances, etc. However, recently, Amazon has moved into category (i) via its Subscribe & Save program, where consumers get discounted prices (15%) when they order five or more subscriptions on their monthly delivery day, and receive free shipping on every Subscribe & Save shipment. Consumers can cancel at any time and pay only when the item is shipped. By offering discounted prices in exchange for converting packaged goods into “relationship” items (e.g., your monthly security service), Amazon has managed to increase the lifetime value of its customers (see my earlier post on Amazon). This takes us to impulse purchases, the third category above. With the Firefly feature, Amazon is essentially taking the store to the customer rather than the customer having to go to the store in order to indulge in such purchases. See a beautiful pair of shoes on the person sitting next to you at Starbucks? Buy yourself the same pair on Amazon (as long as that person allows you to “Firefly her shoes”)! The next thing that consumers shop for are services – the need for a plumber, an electrician or an HVAC provider – especially in emergencies. Amazon seems to be building up its capabilities along this dimension with Amazon Local, although how this evolves in the future remains to be seen.
Now to the skeptical view of the Fire as a shopping platform – currently, customers can fulfill most of the above needs through the regular Amazon app on their current smartphones, with the possible exception of Firefly. Once that feature becomes available on other phones and platforms (as Amazon seemed to indicate), the benefits of having a Fire phone are diminished. Another possibility is if the phone can act as a media consumption device. With Amazon Prime videos and the recently-added Prime music there could be value in seamless integration. Again, if these features are able to be replicated in other non-Fire devices then the benefit can be limited. The Mayday button is still unique, but as consumers become more comfortable with devices in general, this would become less helpful. Where Mayday can really assist is in getting consumers access to local services, especially in emergencies –a car breakdown, a warm refrigerator or an uncontrollable washing machine – a single-button access to an appropriate service consumers can trust might be a useful differentiator. As Mayday’s namesake (played by Grace Jones with considerable aplomb in View to a Kill) notes: “Somebody will take care of you.” If a customer feels that (s)he will be taken care of in an emergency, this could be a reassuring benefit.
This discussion of key differentiating features brings us to the second perspective, that of a consumer who does not yet own the Fire device. Are the features Amazon offers enough to convince a consumer to part with his or her Samsung, Apple or HTC device at the end of a contract and switch to Amazon’s service? As devices become less differentiated, the integrated shopping and media consumption features might be sufficient for some consumers to make the switch. However, as I note in my post on the HTC One (and M8), showing differentiation is increasingly a challenge in this market – even Facebook backed off from the idea of launching a mobile device (see this article on the facebook phone’s challenges) Further, the upmarket positioning, which might be appropriate to emphasize the value embedded in the device, makes it less appealing from a price perspective. Together, all these issues point to some uncertainty in the future of the Fire phone. One thing the company can do is to look at the data on consumers who activate their devices on Amazon. For these customers, the company has access to information on the current device owned, when the contract expires, as well as data on the purchases of products and media consumption. If Amazon is able to carefully harness these data to come up with customized, timed offerings, it might potentially be able to reduce uncertainty. In the meantime, the world is watching.