News from December 8: Amazon chairman and CEO Jeff Bezos says Amazon will release more smartphones. The outside world hopes he has taken the lessons of the Fire Phone’s painful failure to heart. That failure has made Amazon’s ambition of standing out from the crowd of phone makers harder and harder to realize. There are two things worth noting about the Amazon Fire Phone.
First, it was only sold in the United States.
Second, customers could only buy the SIM-free unlocked version (which doesn’t apply in the European market) or a contract phone from AT&T. Just like the HTC First that Facebook and HTC launched together, if the Fire Phone had sold well online, it would have astonished plenty of people. But the Fire Phone had one advantage: Amazon’s homepage is one of the largest internet shopping windows in the world, and the Fire Phone had that behind it. Amazon could place the Fire Phone anywhere it liked among its product categories to draw in potential customers. As expected, Amazon did not publish any Fire Phone sales data, but two things hint that the Fire Phone belongs in the “failed product” column. The first is the sharp drop in the contract price (the two-year contract price is now 99 cents), and the second is that Amazon’s cost records for the phone show a $170 million writedown. Yet Jeff Bezos still stuck with the Fire Phone project. He said that before it can finally be judged a success or a failure, “it needs to go through several iterations.” But this writer takes a different view. Consumer trust in a seller takes a long time to build, and Amazon’s early gamble on the Kindle e-reader, followed by the Kindle Fire tablet, took several years to earn consumers’ trust. But the quality of the Fire Phone burned through that trust fast, with no chance of winning it back. For today’s smartphone makers, market share can be lost startlingly fast, and catastrophically. The cliff theory holds that once consumer trust is gone, support for a phone maker plunges and cannot be recovered. Nokia, Palm, Ericsson, Siemens, Philips and many other companies have fallen this way, and Samsung now seems to be approaching that same ending. Amazon never built a strong smartphone market before launching the Fire Phone, so it doesn’t have a large market share to lose — its problem is that it may never get off the ground at all.
When the Fire Phone 2 arrives, it will hold the same market share as the Kindle Fire, but even more consumers will scrutinize the Fire Phone 2 with doubt and caution. This is not simply a difficult second-version launch; it also has to overcome a whole baggage load of negativity. This writer has no reason to question Bezos’s insistence on developing the Fire Phone in the hope that it will get back on track, so for the Fire Phone 2 to have any hope of being accepted by the market, I want to stress the following three points:
Broaden the carrier network. Setting aside the SIM-free unlocked model, tying the phone to an AT&T contract severely limited the Fire Phone’s appeal. Consumers not only need a Fire Phone, they also need to sign a contract with AT&T and keep up with that network’s updates — or break the contract — in order to use another one. This is a concern for a lot of people. Selling at scale requires lowering the barriers to purchase, and partnering with AT&T for exclusive sales may have saved Amazon some advertising and manufacturing costs; I suspect AT&T helped Amazon pay for that $170 million writedown. Fire Phone sales need the support of networks across the whole United States, but that doesn’t mean it should be limited to US soil. The world is interconnected, and the smartphone fans outside the US who want a Fire Phone should also be potential customers. Amazon needs to expand its market and make the phone available to customers in those places at launch (or within a few weeks after).
Deliver good value for money, or even more. Value for money doesn’t just mean a low price. Amazon can’t push the US price of this phone below 99 cents, and the one-year Amazon Prime membership bundled with the purchase is genuinely tempting. But the phone didn’t deliver on its promise of “making a good phone.” Reviews say the phone has poor sound quality, a subpar camera and an awkward user interface. Ian Morris of Forbes magazine pointed out: “Like the Fire tablet, the Fire Phone’s interface is a mess. That really is a problem, because if consumers are unhappy with the phone’s performance and don’t want to buy it, then the phone is hard to sell. Apple’s iPhone sells well because no matter who picks up the phone, they can use it. I’m an experienced tech industry journalist, and for me the Fire Phone’s user interface really isn’t up to much.” If what consumers buy is useless, then how cheap it is doesn’t mean much to them. Amazon needs to put in much more effort to make the Fire Phone a first-class product that comes out ahead of other smartphones. To stand alongside today’s well-known brands, the Fire Phone needs to be better, faster and smoother than other smartphones such as the Galaxy S5 and the iPhone 6. In addition, this SIM-free unlocked model should be worth its $450 price. However, Amazon has not yet reached that standard.
Improve the phone’s compatibility and usefulness. On the face of it, the Fire Phone running Android is good news. Android is familiar to consumers, it has their trust, and it counts as a flagship operating system in the industry. Of course, this isn’t Google’s version of Android, it’s Amazon’s. By improving the Android Open Source Project, Amazon already has a stable, modern operating system for it to run on. But that operating system has no connection to Google Play, Google Play Services, or Google’s first-party apps like Gmail or Google Maps. Yet these are exactly the apps many consumers depend on. What about the Android apps consumers have already bought? They would need to buy them again on Amazon rather than simply reinstalling them. That being the case, the Fire Phone’s App Store should have every piece of software consumers want, but the fact is it doesn’t. Amazon needs to solve this problem quickly and efficiently, and it will have to pay a steep price in both time and money. Without a good idea, gaps in software usability and app compatibility will drive consumers away from the Fire Phone.
Other measures. Poor performance and the industry’s negative reviews of the Fire Phone leave Amazon struggling in the smartphone market, with little chance of success. The Fire Phone 2 needs more support from Amazon, the carriers, industry analysts and consumers. Just as Apple did when it launched the iPhone, the Fire Phone team should talk to multiple carriers rather than starting with one or squeezing out another. They need to be more strategic, build more partners and partnerships, and pay attention to how consumers in the real world respond to improvements in the Fire Phone’s design. Fortunately, Bezos hasn’t given up. But I want to see more than product iterations and spec improvements. To hit its expected sales figures, the Fire Phone 2 has a lot of work to do. Price, usefulness and value for money all need improvement. The author of this article is Forbes columnist Ewan Spence.
