How Amazon Could Undercut the iPhone

October 19, 2013 Leave a comment

How Amazon Could Undercut the iPhone

Bloomberg News reports that Amazon.com Inc., the Internet retailer, has been talking with HTC Corp., the mobile-device manufacturer, about the possibility of collaborating on developing a line of smartphones. These would be optimized for Amazon Prime customers to download music and videos, as well as shop at Amazon and Zappos. According to the Financial Times, HTC would make at least three distinct handsets, the first of which may be released as early as next year. This is great news for consumers. For two decades Amazon has ruthlessly undercut its competitors on price without skimping on quality, sacrificing profits to gain market share. (I highly recommend reading the excerpt from Brad Stone’s forthcoming book about Amazon that was recently published in Bloomberg Businessweek for more details about the strategy.) Investors have rewarded this unusual behavior by giving Amazon a market value of $150 billion.The sizable profit margins earned by Apple Inc.’s iPhone division and by Samsung Electronics Co.’s mobile division suggest that consumers would benefit from Amazon’s entry into the smartphone market. Imagine if the company that sells Kindle e-readers and tablets for the cost of production were to go head-to-head with the industry leaders. Prices might fall by as much as 20 percent. Amazon might cut prices even more to elbow its way into the market. The company may find it worthwhile to endure temporary losses with the expectation that it will make the money back by selling downloadable content and subscriptions to Amazon’s cloud service.

Betting against Amazon founder Jeff Bezos usually fails, although he hasn’t tried to challenge the likes of Google Inc. or Apple in their core businesses before. Whatever happens, consumers are likely going to be the biggest winners of the coming conflict.

(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter.)

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Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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