Amazon's Next Big Thing: Its Own Smartphones

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When it comes to gadgetry, Amazon.com (AMZN) has become an surprising rock star.

When it rolled out the original Kindle in 2007, bibliophiles argued that cold screens would never replace the warmth of curling up to a good book. Then Amazon went on to sell millions of e-readers.

When it turned its attention to full-featured tablets, no one had any luck competing against Apple's (AAPL) iPad. Sales tracker NPD Group reports that tablet sales in this country from January through October amounted to a mere 1.2 million non-iPad units. Then came this month's Kindle Fire. Orders have been so brisk that suppliers are telling Taiwan's Digitimes that the e-tailer has bumped its production order to a whopping 5 million units.

With skeptic-thumping results like that, who would doubt Amazon's next gadget endeavor?

What's that? Amazon may be branching out into smartphones next year? Wow.

Jeff Bezos Calling

Citigroup analyst Mark Mahaney suggests that Amazon may roll out its own wireless handset in time for next year's holiday shopping season.

This isn't just a stock analyst dreaming out loud or connecting the logical dots. Mahaney's head-turning prediction comes after conducting supply chain channel checks in Asia. Component makers can be pretty chatty when they're off the record, so there's some serious weight here.

This doesn't mean that consumers will get an Amazon smartphone. A year is a long time, and prototypes being produced now can be easily dismissed later. Market conditions may change. Amazon may decide to move in an entirely different direction. However, for now it does seem like it will in fact happen.

An Amazon smartphone will be interesting, but it won't be a slam dunk.

Handing It to the Handsets

It isn't easy to be in the wireless market these days.

Research In Motion (RIMM) has 70 million active BlackBerry accounts, yet analysts see it as a loser. Nokia (NOK) remains the global leader, yet its future smartphone prospects are so dicey that it agreed to champion Microsoft's (MSFT) mobile operating system instead of its own in exchange for a tidy sum of money.

If it's not Apple's iOS or Google's (GOOG) Android, a smartphone is pretty much toast these days.

Thankfully an Amazon smartphone would be fueled by a modified version of Android. It's the approach that Amazon took with the Kindle Fire, so why not?

In fact, an Amazon smartphone would probably look and feel a lot like a miniature Kindle Fire, leaning on Android apps, Amazon's proprietary Silk Web browser, and the online retailer's rich ecosystem serving up books, movies, music, and games digitally.

Serving Two Masters

Amazon sells plenty of wireless devices right now. In fact, the virtual store operator turned heads this holiday shopping season by offering all of its non-iPhone smartphones at $0.01 each with two-year wireless contracts through Cyber Monday.

What will happen next year, when Amazon's promoting its Ama-phone, Kindle Phone, or whatever it will be called on its front page? Will other manufacturers feel jilted?

Probably not. Amazon, after all, sells other e-readers and tablets. Amazon knows that it will never be the only flavor even among its own shoppers.

Amazon has too much at stake at this point not to take the next evolutionary step in its gadgetry rollouts.

Amazon laptops or smart TVs may make sense down the line, but a smartphone is the clear companion to the new Kindle Fire and perhaps even the original Kindle e-reader, though getting folks to enjoy long-form literature on a small phone screen will be a challenge.

Another meaty issue is if Amazon's phone will debut on a single carrier -- the way that the iPhone did in 2007 -- or if it aims for broader wireless coverage. The no-brainer answer would be to shoot for all major carriers, but there's always the possibility that it will snag sweet terms with a single carrier willing to pay up for exclusivity.

The Best Reason to Take Amazon Seriously

When pros cracked open the Kindle Fire earlier this month, they came to the conclusion that its components cost more than its $199 price tag. How can Amazon sell tablets at a loss, something even Apple would never dream of doing? It plans to make back the loss -- and then some -- though digital purchases. Obviously, an Amazon phone will plug right into Amazon's digital storefront.

Amazon has already taken the revolutionary step of selling a cheaper Kindle e-reader model to folks willing to accept ads -- another way for it to subsidize the price of a phone before we even get to the meaty wireless carrier subsidies. In short, Amazon can give smartphone shoppers the most bang for their buck because it can monetize its gadgets in ways that traditional handset manufacturers can't.

Amazon's going to be a winner in this space. Good luck wagering otherwise: History is not on the side of skeptics here.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article, though he does own a Kindle Fire and an iPad. The Motley Fool owns shares of Google, Microsoft, and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Google, Amazon.com, and Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Apple.



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Aeracus

Beware amazon app tracking from their app store apps..... your being watched.

November 30 2011 at 2:24 AM Report abuse rate up rate down Reply
Sekinu2

Amazon is just too damn expensive tro buy from. I have never found a price lower then anywhere else online and usually the things they have that local stores offer is much higher priced. Definately do not buy electronics from Amazon thats some of the biggest markups.

November 29 2011 at 1:32 PM Report abuse rate up rate down Reply
Arn

I love Amazon. Amazon is my hero. Except for their Super Slow Shipping on purchases of $25 or more. I'd rather just pay the shipping and not have to wait 3 weeks to get the merchandise. Other than that, they rule!

November 29 2011 at 8:45 AM Report abuse rate up rate down Reply
ceil20610

www.ticklemeplant.com

November 29 2011 at 8:02 AM Report abuse rate up rate down Reply
thejpc

"...an surprising..." - look it up, Rick. :(

November 29 2011 at 3:25 AM Report abuse rate up rate down Reply
Nikacat

Should have bought Amazon shares a long time ago. Maybe it's not too late.

November 29 2011 at 2:37 AM Report abuse rate up rate down Reply