Amazon may be about to make a big mobile mistake.
The e-commerce giant is widely expected to launch a smartphone at its event in Seattle on Wednesday, but some industry experts doubt the company will be able to crack its way into the already well-established smartphone market—let alone make any money doing so.
"It's definitely going to be an uphill battle," said Julie Ask, a Forrester analyst. "It's very hard to make money in hardware."
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Plenty of other companies, including Disney and ESPN, have tried to roll out their own phone and failed, Ask said. But Amazon is clearly betting it can offer something other smartphones can't, she said.
"I think what they run the risk of doing is introducing features which consumers find attractive, but other companies, like Apple, will simply integrate those features in their phone in an already established market."
That something is rumored to be 3-D technology that lets users interact with the phone via gestures, according to many analysts.
However, more than likely this won't be enough to attract a significant number of consumers, said Kevin Paul Scott, co-founder of the ADDO Institute, a branding consultant firm.
"It's not a smart move for Amazon, nor do I think it will be successful," Scott said. "I think what they run the risk of doing is introducing features which consumers find attractive, but other companies, like Apple, will simply integrate those features in their phone in an already established market," Scott said.
Less Is More?
There's also speculation that Amazon may be deeply discounting its phone, much like it did with its tablets, to help hook consumers. In other words, the company would take a loss in order to get its phone into the hands of consumers who would use the device to make purchases from Amazon.
But even a heavily subsidized phone could fail to move the needle much because people will still face the hassle of unbundling their current wireless service. (A report Tuesday said AT&T will be the exclusive carrier for the new phone.)
"The question is, in an industry where people are locked into contracts, can they get consumers to give them a long enough look to actually make a difference?" Scott said.
For Amazon to have any success in smartphones, it will have to offer more than just a new feature and lower price, some analysts said. The company will have to offer content and services that people can't get anywhere else.
"They could just release a phone, but I'm almost anticipating something nuts. They have to be thinking, 'We are going to do something beyond the phone,'" Ask said. "Perhaps they would even sell the phone and the service."
"They have been given a lot of leeway to try to gain market share instead of profit, but at some point the lease will run out."
The company could also offer a bundle of content — including access to books, music and videos—that might be able to entice consumers, said Tuong Nguyen, a principal research analyst at Gartner who focuses on consumer technology and markets. But even that may not be enough, he added.
And if the phone is a flop, then Amazon may face a day of reckoning with Wall Street, Scott said.
"Their greatest challenge is increasing profitability. They have been given a lot of leeway to try to gain market share instead of profit, but at some point the lease will run out," he said.
"I don't know when Wall Street is going to get weary of Amazon's strategies, but if the phone is a colossal failure, that could expedite an uneasiness of Amazon's approach and they will have to answer to investors' 'what's the long term plan?'"
First published June 17 2014, 1:22 PM