07. September 2013 · Comments Off · Categories: Economy, Technology + Computing

The last couple of days, I was reading many articles about Amazon planning to offer a free smartphone (e.g. This article).

I am quite sure Amazon is working on something like that, but will it work? Below I’m outlining an idea that could, in fact, work out for Amazon, and would be a boon for consumers.

First Amazon needs to reduce the BOM (Bill Of Materials Cost) to around USD 100 without compromising on the quality of the device. It needs to be something around 4-5 inches, neat capacitive touch, with a fast CPU, about 1GB RAM, 16GB flash storage, USB, HDMI and, preferably, a MicroSD slot for MicroSD-cards up to 64 GB.

Second it needs to come preloaded with the usual suspects as apps: mail, browser, music player, video player, calendar, address book, etc. You get the picture. On the browser side, it should be the in-house Silk-browser, which helps reduce data usage significantly by compressing the web page in question on Amazon’s servers before sending it to the client.

Third it needs to have free (nationwide) voice, free messaging and free data. Now, Amazon could solve the latter (messaging) by integrating WhatsApp, Blackberry Messenger, etc all on the device so that the free messaging uses mainly data plans. In cases where it doesn’t work (e.g. the recipient of a message doesn’t have any of those solutions) Amazon could re-route it through their own servers and reduce costs significantly because Amazon could use wholesale pricing for SMS sending/receiving, in which case each SMS could cost significantly less than one cent.

Fourth Amazon needs to re-route all voice calls through an in-house VoIP solution, so that it doesn’t use any voice traffic from the device to the network. It’s like Skype-OUT and Skype-IN. It works, and if call quality is not perfect at times, people could accept it as it is a free phone after all. This would mean, Amazon would be acting something like LTE where all communication goes through data transmission and no dedicated voice connection is created anymore.

Fifth Amazon should require a Amazon Prime subscription for free data, voice, and messaging. Meaning that all Amazon Prime subscribers automatically have free voice, data and messaging, on top of what they have today (all for national communication only; Amazon could charge additionally for international calls).

Sixth Amazon needs to get the top 2,000 apps for Android adapted, optimized and customized for this Amazon phone available within Amazon’s AppStore. Without those apps, people may use Amazon phone as a second phone for making phone calls but still have a primary phone for app usage – and that’s not something Amazon wants. It wants people to use Amazon phone as their primary phone only!

Lastly, in order to implement all the above, Amazon should (a) become a Mobile Virtual Network Operator (MVNO) and (b) member of the GSM association in order to save costs on interconnection (and on implementing some of the technical tricks). With that, Amazon could be able to offer such a device.

How, you ask, would Amazon then make money with such a device, making losses wherever they go? I don’t think Amazon would make a significant loss. Being already one world’s largest hoisters, Amazon probably already has some significant deals with telecoms and cable operators – after all, they are the ones currently connecting Amazon.com to the consumers. So, I believe Amazon could negotiate a major deal with the operators to reduce their costs significantly. Will the operators play along? I don’t know. This is, in fact, the weakest part of the plan. Amazon needs to convince the operators that they can, over time, make more money with Amazon than if they’d try to sell to consumers directly.

Also, Amazon should invest heavily in advertising on the phone: After all, Amazon knows these customers best and can offer to sell to anything that they want (actually, this is also Amazon’s mission: to be able to have everything that is sold on this planet to consumers available for sale in its store – and I mean everything!).

Could this work? I think so.

Will Amazon do something like this? I don’t know.

Would I switch to Amazon if it did? I don’t know either (theoretically yes, but practically it would be difficult for me to think that I depend on Amazon on everything – I like diversity :-)

Would other people switch to Amazon? I think yes, especially if Amazon first targets the mid-range consumers, i.e. those with mid-range purchasing power.

Would Apple suffer? Not at all as people buy Apple phones for other reasons than price.

Would Google suffer? Definitely (well, actually it would be Samsung, HTC, Motorola, etc)

What about Microsoft? This would be the final nail in their mobile ambitions and Windows Phone would be dead immediately.

Just some ideas to think about… ~

Bootnote: I know there are millions of arguments why this cannot work, especially from a business point of view, but there are also some (maybe a few) showing why this could work out, over long term, – business-wise. So bear with me and don’t just dismiss it because it sounds outlandish…

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