Over the course of the past year the rumour that Amazon has been working on a new smartphone has kept resurfacing. Now, according to a new report, it looks like when Amazon does finally release a smartphone it will be offered for free.
Signing up to a subscription of Amazon Prime may be required in order to receive the phone, which costs £49 a year. However, according to the report, Amazon wants the device to remain free whether or not people sign up to a new wireless plan at the same time. Wireless carriers regularly subsidise the price of phones if they sign up for one or two year contracts.
Details are sparse at the moment, but if true Amazon would no doubt follow a similar strategy to the one they have used with their Kindle Fire line of tablets, using the Android OS minus Google’s preloaded apps (Play Store, Maps, Search, etc). This would then allow the chance to market and sell e-commerce through its own rival stores (Kindle eBooks, Amazon Music, Amazon App Store, etc) and the opportunity to recoup lost profits. Amazon is willing to become a loss leader when staging its entrance into the crowded smartphone market, sacrificing its short-term profit in order to gain market share.
Why free though?
If Amazon release a free smartphone, regardless of the specifications of the device, it will shake up the market. At the moment there is a two horse race going on between Apple and Samsung, who together take 100% of profits from smartphone sales worldwide. These two companies have cornered the high-end market, and almost exclusively make all their profits from their expensive flagship devices; the Apple iPhone 5, which retails at £529 for the basic model, and the Samsung Galaxy S4, priced at £549.95.
Undercutting Samsung and Apple seems to be the only option for smartphone makers to grab meaningful market share. A number of smartphone makers have realised this fact, including Nokia, and have begun focusing on creating cheaper smartphones, seeing it is the only feasible way to stage an entrance into the crowded market. Amazon recognised this was the best way to proceed in the tablet space, where they released their incredibly cheap Kindle Fire tablet, and now it looks like they’re going to use a similar tactic in the smartphone space too.
Even Apple is rumoured to be planning a response to this trend with the upcoming iPhone 5C, a budget version of its smartphone which is to be sold alongside its high-end brother, the iPhone 5S. Do not expect Apple to release a free phone anytime soon however; the company generates 51% of its revenue from iPhone sales, which has been key to the company’s expansion in recent years.
When can we expect it?
According to the report Amazon’s plans are not ‘set in stone’ and there are a number of things needing ironing out before the phone can be announced. Amazon has supposedly struggled to find hardware suppliers to manufacture the phone, as many have signed agreements with Google to only manufacture Google-approved Android devices.
Regardless of whether Amazon releases a free smartphone, or one just heavily subsidised, the fact Amazon is considering such a strategy indicates the lengths it is willing to go to in order to gain marketshare in the smartphone space. If true, then other smartphone providers could be forced to follow suit and offer devices at a cut rate. It could cause prices to crash.
Such a scenario would be Apple and Samsung’s nightmare.
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