For Amazon, there are three key reasons why a smartphone would be a wise move, and why developers would be equally wise to take notice.
Leverage Kindle Fire Strategy
Reason 1: Amazon can leverage its Kindle Fire strategy. The tablet has opened up a whole new category by being the only branded low-cost 7-inch tablet (until the Nexus 7 came along). The company can undercut its competitors because it has a very different business model: Because it makes money by selling physical and digital goods, it can afford to price the Kindle Fire at cost.
The company is likely to use the same strategy on its smartphone — build a decent or good-enough device that is significantly cheaper than competitors with similar specifications. That’s a surefire way to gain market share, as the Kindle Fire has demonstrated.
But there are challengers: If Amazon uses the same strategy as it did with Kindle Fire, the smartphone would be powered by a forked version of Android. That would mean the company has to come up with its own suite of native apps to replace Google-branded ones, like Google Maps and Gmail.
It would also face the challenge of dealing with carriers for distribution partnerships, which isn’t an easy feat.
Kindle Fire-Smartphone Synergy
Reason 2: a Kindle Fire and an Amazon smartphone would have synergy. While Amazon may not be able to sell the same amount of digital goods on a smartphone as it does on its tablet, what if users had both an Amazon smartphone and the Kindle Fire? There would be synergy between the two devices. Users could carry the smartphone in their pocket and purchase contents wherever they go, later consuming it on their Kindle Fire.
And while smartphones may not be ideal device for watching videos or reading ebooks, they’re great for consuming music.
Reason 3: an Amazon smartphone can be an ecosystem builder. A tablet alone, running on its own mobile platform, isn’t a strong offering to consumers or developers. There’s no synergy when it comes to using a tablet and smartphone with different platforms.
But an Amazon smartphone operating on a common platform can act as the missing piece in Amazon’s ecosystem, offering a more complete solution.
Amazon could offer a seamless experience by automatically syncing apps and digital contents across all of its devices, without any, or minimal, configuration on the user’s part. That way, users will be more ready to invest their hard-earned cash on digital content, knowing that it will be available across all of their mobile devices.
The amount of investments a user places on a platform directly influences its stickiness, or user loyalty. Amazon already has a decent user base with Kindle Fire, but has to work twice as hard to keep them from defecting.
Instead of letting its fate fall into the hands of Google and Apple, which happen to be selling the same category of digital contents as Amazon, the online retailer has to act fast to gain some control before it’s too late.